Tencent Leads China Tech Losses as Major Backer Plans to Cut Its Stake

(Bloomberg) — Chinese technology stocks fell as a plan by Tencent Holdings Ltd.’s major backer to further cut its stake in the company fueled concerns more investors may look to take profits following a strong rally.

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The Hang Seng Tech Index slid as much as 2.9% Tuesday, the most since June 22, before paring some losses. Tencent slumped as much as 5.8%, the most in nearly six weeks, after Prosus NV on Monday said it intends to sell more of the mobile gaming giant’s stake. JD.com Inc. — another firm in which Prosus sold stock — and Bilibili Inc., were among the other big decliners on Tuesday.

“Tencent’s big shareholder sale is definitely hurting the whole market sentiment,” said Banny Lam, head of research at CEB International Investment Corp. “The tech stocks have had a good rally, so it’s not surprising for us to see people taking profit or rotating among sectors.”

READ: Tencent Backer Prosus to Cut $134 Billion Stake to Buy Stock

Prosus, an arm of South African internet giant Naspers Ltd., sold almost $4 billion worth of stock in JD.com that it got as dividends from investee Tencent, saying on Monday that the e-commerce firm didn’t fit with its broader strategy.

The Chinese tech gauge has rebounded more than 40% from a record low in mid-March, as investors rotate back into the sector on bets that the worst of Beijing’s crackdowns — which triggered more than a year of heavy selling — is over. A growing chorus of global investors including JPMorgan Asset Management and Goldman Sachs Group Inc. have turned more sanguine on Chinese tech giants, citing attractive valuations and supportive policies.

READ: ‘Worst Over’ Call for China Tech Booms on Ant IPO Revival News

Still, industry insiders point to a more downbeat picture despite a softening regulatory stance. China’s strict adherence to Covid Zero policy and sporadic infections mean a full reopening may still be far away, and will likely continue to be a drag on the economy.

The sell-down plan by Prosus was taken to be “a sign from other investors that the rally had hit a near term peak amid an uncertain macroeconomic environment and the ongoing Covid situation,” said Justin Tang, head of Asian research at United First Partners in Singapore.

Companies including Alibaba Group Holding Ltd. and Bilibili have seen their shares approach or enter overbought zones this month, technical indicators compiled by Bloomberg show. The Hang Seng Tech Index is still up 11% in June, poised for its best month in nearly two years.

(A previous version of this story was corrected to fix the spelling of company name to Bilibili.)