Money is About to Flow Into China, Just as It Pours Out of Tencent
May 28 2018 - 1:43AM
Dow Jones News
By Steven Russolillo
Asian stocks rose Monday as weekend diplomacy between Washington
and Pyongyang revived the potential for a summit between President
Donald Trump and North Korean leader Kim Jong Un. Japan's Nikkei
225 index rose 0.1%, the Korea KOSPI index gained 0.8% and Hong
Kong's Hang Seng index rose 0.6%.
Monday's Big Theme
Mainland Chinese investors are yanking money out of Tencent
Holdings Ltd. --one of the country's biggest and most high-profile
companies--just as billions of dollars from around the world are
expected to flow into China's markets this week.
What's Happening
An odd phenomenon is taking place this month: Investors on the
mainland have pulled funds from Tencent, the tech titan behind the
popular Chinese messaging app WeChat.
Mainland money has poured into Tencent for years through the
trading vehicles that link China and Hong Kong--known as Stock
Connect--and been a key pillar of support for the stock. Mainland
investors were net buyers of Tencent stock every month from
November 2016 through March, before turning slightly net sellers in
April.
May has been different.
Those Mainland investors are on track this month to be heavy net
sellers of Tencent, a rare occurrence since the Shanghai and
Shenzhen Stock Connect programs were both open in late 2016,
according to data from Wind Info. On Friday, Tencent experienced
its second biggest daily outflow ever through these trading
links.
Market Reaction
There are multiple theories at play here. One is fundamental:
Concerns have mounted for months about the company's slowing growth
and shrinking margins. Tencent's strong earnings report earlier
this month was supposed to put those fears to bed. But the stock is
still 15% below its record high in January, trading closer to this
year's low than its high.
Another theory is related to a major upcoming event from MSCI
Inc. The global index provider is on Friday set to include more
than 200 mainland-listed Chinese stocks in its key indexes, giving
global investors exposure to those stocks.
Mainland investors could be trying to front run the event,
loading up on mainland-listed companies now and selling their Hong
Kong stocks--think Tencent--in order to do so.
So far, that approach appears to be working. The Shanghai
Composite, a benchmark index of mainland-listed stocks, is up 2.1%
this month, whereas the MSCI China index--a separate gauge that
includes Chinese stocks listed in Hong Kong and New York such as
Tencent, Alibaba Group Holding Ltd. and Baidu Inc.--is up 1.6%.
Tencent holds the biggest weighting in MSCI China at 17%.
Together with Alibaba and Baidu, those three stocks make up roughly
a third of the index. None of them are in the Shanghai
Composite.
If the trend holds, May would be only the third time in the past
18 months that the Shanghai would have outperformed MSCI China.
Elsewhere
The euro gained against the U.S. dollar after Italy's president
rejected the formation of a new government supported by two
anti-establishment parties. Crude-oil prices sank over 2%. Stock
markets in the U.S. and the U.K. are closed Monday for public
holidays.
Write to Steven Russolillo at steven.russolillo@wsj.com
(END) Dow Jones Newswires
May 28, 2018 01:28 ET (05:28 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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