Naspers lost more than R70bn of its value on Monday as its biggest investment — Tencent — became the latest victim of a continued crackdown by China’s government on technology companies.
By the close of trade on Monday, Naspers shares were down 7.18% at R2,748.01. This was in line with Tencent, of which Naspers holds about a third, which lost close to 8% of its value in Hong Kong.
All this comes as Chinese competition authorities ordered Tencent to stop a practice of exclusive music licensing rights, also levying a small fine, which follows 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’s government has been cracking down on technology companies since the end of 2020 when a $37bn (R550bn) listing of Jack Ma’s Ant Group was foiled.
“The Chinese government has taken a holistic approach to the technology sector and at swift pace,” said Old Mutual Investment Group portfolio manager Neelash Hansjee.
Apart from the music restrictions, Tencent has some education investments in its portfolio that may be affected after the government said such businesses should be nonprofit organisations,and that it does not want foreign capital invested in education platforms.
Tencent had planned to monetise education content through its subsidiary, WeChat. On Monday, Chinese education technology stocks were down 70% on the declaration as investors questioned the viability of such businesses without a profit incentive in place.
Nick Kunze, portfolio manager at Sanlam Private Wealth,noted the effect of Chinese regulation on the local market as Tencent influences the JSE viathe Naspers stable. “We can see the effect on the local market, with both Naspers and Prosus down over 7% today and the biggest laggers on the JSE,” he said.
In morning trade, the Johannesburg bourse had lost 0.61% to 67,645.43 points, paring some of those losses to end the day 0.02% weaker overall.
The sell-off came at a time when other SA assets were under pressure, with the rand almost breaching R15/$ for the first time in four months as risk aversion dominated markets due to fears over the rampant spread of the Covid-19 Delta variant.
The rand remains at relatively weak levels, said RMB economist Siobhan Redford, “and, like domestic equities, it will see its fortunes determined this week by global events”.
A break through R15/$ is very possible as concerns over global growth are further weighing on the currency, said TreasuryONE currency strategist Andre Cilliers.
In the short term, Kunze said Naspers and Prosus have been underperformers year-to-date and “sentiment on the Chinese tech sector is significantly negative. However, longer term, sentiments can be reversed in a matter of days as witnessed with the pulling of Ant Financial and Alibaba.”
Hansjee is a little less optimistic, saying: “Tencent ’s main business is not education, but preventing foreign capital and changing business models to nonprofit is a risk factor to other industries that have yet to be impacted … meaning there could still be headwinds.”
By 9.30pm, the rand had reversed earlier losses, firming 0.35% to R14.14.7896/$, after earlier reaching and intraday worst of R14.9951/$.
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