By Jack Denton
Chinese stocks like Alibaba can't catch a break in 2024, largely languishing -- as they have for years -- amid geopolitical tensions and China's economic slowdown. But there's one exception: tech giant Tencent.
Alibaba stock has fallen almost 7% so far this year, with other Chinese tech peers faring similarly. JD.com shares are down 9% and Temu-owner PDD stock is 10% in the red. Baidu shares have slid more than 25% in 2024. This cohort has lagged both the S&P 500 index, which has risen 15% year-to-date, as well as Hong Kong's Hang Seng benchmark, up 4%.
Compare that performance to Tencent, which is listed in Hong Kong and traded over the counter in U.S. markets. Tencent shares have rallied 27% so far this year, with the company adding some $90 billion in market capitalization, firmly cementing it as the second-largest public company in East Asia after chipmaker TSMC.
Why has Tencent stock done so well while Alibaba and others have not? Tencent is a Chinese tech and media company that is similarly sensitive to weakness in domestic consumption as well as regulatory and geopolitical pressures. The answer may lie in a blockbuster video game launched last month called "Dungeon & Fighter Mobile."
Shares in Tencent, like much of the rest of Chinese tech, have been slammed since Beijing began a crackdown on technology companies in late 2020, with the stock still down almost 50% from its early 2021 peak. Regulators have taken a hard look at video games in recent years, seeking to limit time that Chinese citizens spend playing and restricting how much money can be spent on in-app purchases.
Video games must be approved by regulators to be launched in China, which has at times stymied growth amid monthslong droughts of approvals. But amid wider measures to support the country's struggling stock market, Beijing made a u-turn on tough gaming rules earlier this year. It seems to have worked, for Tencent at least.
Tencent stock hasn't been rising all year. In fact, much of its gains have come since February, when regulators gave the green light to Dungeon & Fighter Mobile, which was eventually released on May 21. The game has been a hit, consistently ranking at the top of Chinese app stores, according to research group Sensor Tower.
Such a success will have a material impact on Tencent, and the stock is showing it. Dungeon and Fighter Mobile has raked in more than $270 million in revenue in a month, Bloomberg reported this week, citing a Sensor Tower report.
As the debate rages among investors whether Chinese stocks like Alibaba -- sitting at multi-year stock-price lows -- look like screaming value buys or value traps to be avoided, there's a different lesson from Tencent's success. While many of Beijing's measures to stimulate Chinese stocks have been underwhelming, there is a pathway to a real recovery and return to growth.
Write to Jack Denton at jack.denton@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 28, 2024 10:47 ET (14:47 GMT)
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