Naspers suffered a second day of heavy losses on Tuesday as Tencent, its biggest single investment, became the latest victim of Chinese authorities’ crackdown on tech companies, heightening uncertainty about the safety of foreign capital in the world’s second-biggest economy.
The JSE’s biggest company by market value and by weighting was down 7.33% by the close of trade on Tuesday, adding to a 7.18% drop on Monday.
It has lost R190bn of its value over the past two days, equivalent to 3.3 times the market cap of Woolworths.
The selling frenzy in Naspers, whose international internet business, Prosus, houses its prized $200bn stake in Tencent, will be felt across a broad swathe of the investment community from pension funds to retail investors as the company accounts for more than a fifth of the stock exchange.
Chinese competition authorities ordered Tencent to stop exclusive music licensing deals and levied a small fine after taking similar action against other technology firms. Tencent Music was the fifth-largest music-streaming service in the world in 2020, according to market data firm Statista.
China has been cracking down on technology companies since the end of 2020 when a $37bn (R550bn) listing of Jack Ma’s Ant Group was cancelled.
“Tech companies in China are under increased scrutiny from officials in Beijing,” said Michael Treherne, a portfolio manager at Vestact Asset Management. “Tencent and Alibaba are central to the functioning of Chinese society, and have become important institutions.
“The Communist Party is flexing its muscles to show everyone who actually holds all the power.”
Apart from the music restrictions, Tencent has some education investments in its portfolio that may be affected after the government said that such businesses should be non-profit organisations and that it does not want foreign capital invested in education platforms.
Tencent had planned to earn income from education content through its subsidiary, WeChat. On Monday, Chinese education technology stocks were down 70% on the declaration as investors questioned the viability of such businesses without a profit incentive in place.
Naspers is not the only global investor that has suffered from the wave of policy reform in China. According to Bloomberg, the crackdown has erased $769bn in value from US-listed Chinese stocks in five months.
Billionaires have also been caught. The founder of online tutoring firm Gaotu Techedu and former multibillionaire Larry Chen is worth only $235m after China’s regulatory overhaul saw his company take a 70% dive at the weekend.
Treherne said that being an investor in, or associated with, Tencent presented risks, one of which was increased regulation in China, which curtails growth prospects.
“The much more worrying scenario would be if the current structure whereby foreign shareholders, including ourselves, via Prosus and Naspers, were to be deemed illegal.”
How long it will take for the dust to settle on this crackdown is an uncertainty that investors will have to grapple with for some time.
“I don’t think that the story is going to be over soon,” Unum Capital portfolio manager Henk Lindeque said.
“We’ll see if it’s like in the past where the guys are just going to restructure and carry on or whether this is going to have a permanent effect.”
While the Chinese clampdown has been a huge blow for Naspers, Lindeque said it had added to a growing scepticism about Naspers, which lost almost a 10th of its value after the announcement of a complex share swap in May. The share swap is the latest in a string of attempts by Naspers CEO Bob van Dijk and his team to narrow the multibillion-rand gap between its market value and the sum of its parts.
It feels as if management is “just destroying shareholder
value. They’re taking Naspers shares, selling them and investing in companies that don’t make a profit,” Lindeque said.
The sell-off came at a time when other SA assets were under pressure. The rand almost breached R15/$ for the first time in four months on Monday as risk aversion dominated markets due to fears over the rampant spread of the Covid-19 Delta variant. By 7.30pm, the rand had gained 0.2% to R14.7638. With Lindiwe Tsobo
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.