Naspers and international associate Prosus crashed as much as 10% on Tuesday as the tech companies found themselves in the crosshairs of geopolitics after news that the group’s largest investment, Tencent, had been added to a US blacklist.
Naspers shares plunged 10.1% to end at their worst level of the day at R3,740.04, while Prosus dropped 8.38% to end at R681.23 after clawing back a little of its intraday loss of 9.64%. The moves wiped out more than R300bn in value as investors fretted about the implications of the US action.
Naspers, the JSE’s biggest company by market capitalisation, holds almost 25% of Tencent — valued at about $100bn — via Amsterdam-listed Prosus.
The plunge in shares saw key figures behind the companies lose paper money in the rout. Tencent co-founder and CEO Ma Hauteng lost $2.7bn, according to real-time data collated by Forbes. Naspers chair Koos Bekker shed R1bn. The two men will, however, not be losing sleep as they are still worth $41bn and $2.8bn, respectively, according to Forbes.
On Monday, the US defence department said it had added a number of Chinese tech giants including Tencent to the list of firms it says work with China’s military. The designation doesn’t affect the gaming and social media behemoth’s business operations, but it introduces uncertainty and potential challenges for the company.
The saga highlights the intersection of geopolitical tension between the US and China, and corporate investments, while again underscoring risks associated with doing business in emerging markets.
It is not the first time Naspers has faced geopolitical challenges. In 2022, its investment in Russia’s Mail.ru came under intense scrutiny after Russia invaded Ukraine in February that year. Naspers was forced to write off the value of its other Russian investment, social media company VKonakte, due to international sanctions and suspension of the company’s stock in London.
US-traded shares of Tencent, which is also the parent of Chinese instant messaging app WeChat, slumped 8% in over-the-counter trading when the news broke on Monday.
Tencent said its inclusion was “clearly a mistake”, Reuters reported. It added: “We are not a military company or supplier. Unlike sanctions or export controls, this listing has no impact on our business.”
The tension between the US and China stems from a mix of trade disputes, technology theft, espionage concerns, military posturing in Asia-Pacific and the US’s support for Taiwan, creating a global stage that is anything but harmonious.
Given the US’s stringent sanctions on Iran and aggressive stance on companies operating there, the China-US squabble has the potential to turn the spotlight on companies such as MTN, which is unable to repatriate billions of rand in profits from its operations in the Middle Eastern country.
For investors in the Naspers stable, the move is a reminder of recent woes that saw Tencent reeling from a crackdown on Chinese technology firms that has hurt its gaming unit over the past few years. The difference now is that the trouble is brewing from a different government. The JSE’s largest tech group is expected to remain loyal to the Shenzhen-based company, riding out yet another storm.
Prosus lost almost a fifth of its value in 2021, wiping off more than R400bn, as investors continued to worry about the safety of their capital in China.
With developments and an unpredictable regulatory regime in that country having hurt the prospects of Naspers-Prosus in recent years, the group has turned much of its attention to the world’s most populous country, India, in which Naspers has been a big investor for more than a decade.
Peter Takaendesa, head of equities at Mergence Investment Managers, said that Tencent still dominated Prosus’ net asset value, despite having sold down its stake to fund an ongoing share buyback programme. “One could have argued global investors were already applying major valuation discounts to Chinese stocks for such potential risks but it’s always very difficult for the market to ignore the news flow,” he said.
“Tencent is continuing to perform very well operationally and this [black]listing is unlikely to have a material operational drag, so the risk is Tencent will derate further over the midterm. The Prosus and Naspers investment case remains attractive longer term,” highlighting that these issues are likely to wash out and “they continue to invest in profitable growth companies outside China”.
With Reuters
Update: January 7 2025
This story has been updated with new information.
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