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Thursday, January 14, 2021 9:14:51 AM
By: Lyn Alden Schwartzer | January 12, 2021
This week’s issue of “Where Fundamentals Meets Technicals” dives into an assortment of growth areas.
Tencent
Chinese stocks have whipsawed quite a bit recently.
The CCP has cracked down on some of the country’s big tech oligopolies, particularly Alibaba (BABA), to reign in their overall market influence.
The US Treasury listed a bunch of Chinese companies that will be illegal for Americans to invest in, including semiconductor and engineering/industrial firms. The largest was China Mobile, and the NYSE flip-flopped on whether to delist them.
Alibaba and Tencent (TCEHY) were briefly mentioned as possible additions to the list of stocks that Americans aren’t allowed to own, but were not included on the list, which knocked around their price a bit as that question was sorted out.
Delisting from exchanges is not a big deal for these large cap Chinese firms, since they’re not reliant on the capital. Tencent, for example, doesn’t even trade on the NYSE or NASDAQ. However, an outright blacklist that makes it illegal for Americans to own them, would be a huge deal for American investors and an ongoing tail risk to be aware of.
My base case is that these mega-stocks like Tencent and Alibaba will not be blacklisted within the next, say, 4+ years, because it would mess up every international/emerging index out there since they’re the largest two ex-US companies in terms of market cap in the world. The amount of lobbying by multi-trillion dollar asset managers and large banks to any administration against that would be quite big. However, it remains a nonzero possibility and investors should manage position sizes appropriately.
Garrett sees room left for Tencent’s bull run:
The fundamentals for it look quite good. The balance sheet is great, the growth is great, and the valuation is in line with its normal history, unlike US tech stocks that are off-the-charts in terms of valuation:
Chart Source: F.A.S.T. Graphs
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