Tencent Shares Surge Over 10% in April, Outperforming Global Tech Giants

Tencent Holdings Ltd.'s shares have surged more than 10% in April 2024, outperforming the Magnificent Seven, a group of large U.S. tech companies, and signaling global investors' growing appetite for China's undervalued megacap stocks. The stock's recent boost came from an earlier-than-expected debut for a blockbuster game title, as the Chinese gaming sector looks to break out of a long slump.

In contrast, U.S. tech giants have seen their shares slip due to reduced expectations for profit growth as they focus on delivering on the promise of artificial intelligence. Bloomberg Intelligence analysts project Tencent will return to sequential profit growth in the current quarter, driven by strength in its gaming and short video segments.

Despite the recent surge, Tencent's shares are still trading at less than 16 times projected earnings, compared to a five-year average of nearly 23 times and 28 times for the Magnificent Seven. Technical signals also indicate that Tencent may be positioned for further gains, with its 50-day moving average on track to close above the 100-day level.

The Asian equity markets, spearheaded by Chinese tech shares, have shown resilience, with the Hang Seng Tech Index recording a 3% increase. Tencent's significant weight in the Hang Seng Index has been a major factor in the Hong Kong stock market's recent success, and there is speculation about potential earnings upgrades for the company.

Why this matters: Tencent's stock surge highlights the growing interest from global investors in undervalued Chinese tech stocks. The company's potential return to profit growth and its impact on the broader Asian markets underscore the significance of China's tech sector in the global investment landscape.

Analysts remain optimistic about Tencent's outlook, with Bloomberg Intelligence projecting a return to sequential profit growth driven by its gaming and short video segments. "Tencent is expected to return to sequential profit growth in the current quarter on strength in games and short videos," the analysts stated.

Key Takeaways

• Tencent shares surged over 10% in April 2024, outperforming U.S. tech giants.
• Tencent's early blockbuster game debut drove its stock boost amid China's gaming recovery.
• Tencent's shares trade at less than 16x projected earnings, undervalued compared to peers.
• Tencent's weight in Hang Seng Index fueled Hong Kong market's recent success.
• Analysts expect Tencent to return to sequential profit growth in current quarter.