Why Tencent Shares Are Falling Today

Tencent (TCEHY -9.14%) shares sink in Tuesday trading. The Chinese media and technology giant’s share price was down 8.4% at 2:45 p.m. ET, according to data from S&P Global Market Intelligence.

Chinese stocks are losing ground today after indications that additional economic stimulus from the country’s government will not be received in the near future. Tencent and many other Chinese companies saw their valuations rise in late September after new stimulus initiatives were announced, but the momentum is fading as investors grow more skeptical about the extent of economic support.

Tencent and other Chinese stocks see reversal on bullish comments

Chinese economic officials indicated today that they are confident in the country’s ability to meet its economic growth targets for this year. Economic Planning Chairman Zheng Shanjie said the country will transfer $28.36 billion from the 2025 budget to be spent this year to promote infrastructure investment projects and support local governments. But investors were anticipating more substantial measures.

China has seen a relatively mild economic recovery from the coronavirus pandemic, and investors have looked to the country’s government to continue large-scale stimulus initiatives to support the real estate market and consumer industries. With signs that stimulus spending may be lower than expected following a wave of optimism, Tencent and other Chinese stocks saw strong sales today.

What’s next for Tencent stock?

Even on the back of recent gains fueled by government stimulus, Tencent shares are still down about 42% from their peak. Meanwhile, the company grew its revenue and operating income by 8% and 27% year-over-year, respectively, in its most recently reported quarter.

TCEHY Data PE Report by YCharts

Tencent’s stock trades at about 18 times its trailing 12-month earnings. While this valuation seems relatively cheap for an industry-leading company with substantial long-term growth potential, factors beyond business fundamentals could continue to play huge roles in shaping the company’s stock performance.

In addition to macroeconomic concerns, investors also have geopolitical risk factors to consider. Tensions have risen between the US and China, and this has led to support for US institutional investors to reduce positions in Chinese companies. If relations between the US and China continue to deteriorate, that could put additional pressure on Chinese stocks.