Naspers and Prosus fall on report that US may ban investment in Tencent
The Wall Street Journal says the US may ban investment in Tencent and Alibaba, but there are fears of capital market disruption
Shares in Naspers and its international arm Prosus have fallen the most in more than a week, even as the JSE rallied to an all-time high after the Wall Street Journal reported that US authorities may ban Americans from investing in the stock of Chinese internet giant Tencent, which is Naspers’s most significant investment.
The New York-based business daily said officials from the US state department and department of defence have held talks on expanding a blacklist of companies alleged to have ties to China’s military and state security. Tencent and Alibaba were specifically mentioned as companies likely to be added to the list, though the plan may not proceed due to concerns about disruptions to US capital markets, the Wall Street Journal reported on Wednesday.
“It’s obviously extremely material for Naspers and Prosus should any of this happen,” said Wayne McCurrie, a portfolio manager at FNB Wealth & Investments. “Politicians around the world are becoming increasingly concerned about the inherent power of the big tech companies, especially social media, which can influence public opinion. Any scrutiny by any authority can’t be good for tech.”
Naspers slid as much as 3%, the steepest drop since December 28, before closing 2.8% lower at R3,013.75. Prosus fell as much as 3.5%, also the most since December 28, before ending the day 3.3% lower at R1,602.97. The decline happened even as the JSE all share closed at a record high of 63,042 points after Joe Biden was confirmed as the US president-elect by Congress, clearing the way for expected greater stimulus measures in the world’s biggest economy.
Naspers spun off Prosus in September 2019 to create a new entity to house its international investments and separate them from its SA assets. Naspers owns 31.2% of Tencent via Prosus, which is 73% owned by Naspers and is listed in both Amsterdam and Johannesburg.
Trump and his Chinese trade war
The potential US ban on Tencent comes amid growing US sanctions against Chinese companies believed to be linked to China’s intelligence and state security apparatus. Outgoing US President Donald Trump signed an executive order in November blocking American companies or individuals from investing in 31 Chinese companies believed to have links to China’s military and intelligence services.
Trump has been a vociferous opponent of China throughout his tenure and has escalated a trade war against the country, as well as encouraged US firms to relocate factories from China to the US.
The New York Stock Exchange said on Wednesday that it would delist the shares of three Chinese companies — China Telecom, China Mobile and China Unicom — by January 11 to comply with Trump’s executive order.
“President Trump has had it in for China for a long time but anything he does before he leaves office could well be reversed by Joe Biden,” said McCurrie. “I don’t think anything dramatic will happen but tech companies are certainly under a lot of scrutiny both in the US and China — and elsewhere.”
Several media reports from China on Thursday indicated that Chinese officials may be considering nationalising Jack Ma’s Alibaba and the Ant Group, extending beyond an anti-trust investigation launched against the e-commerce behemoth late in 2020. Ma, the billionaire founder of Alibaba, has reportedly not been seen in public since October, when he made a speech criticising China’s financial regulators.
“One of the reasons the Chinese authorities are unhappy with Alibaba is because it has moved beyond e-commerce and is becoming involved in credit extension,” said McCurrie. “Tencent is a fundamentally different business in that it is more of an online commerce, social media, business-to-business and business-to-consumer platform. It is not involved in credit extension.”
Update: January 7 2020
This article has been updated with new information and comment throughout. A further update shows the closing prices of Naspers and Prosus on the JSE.
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