Yahoo Finance Questor: Tencent has felt Beijing’s ire and this pick has shared its pain. Can we hold?
Beijing’s muscle-flexing doesn’t worry only Western statesmen who fear for the future of Hong Kong and Taiwan: ordinary investors in this country are feeling the effects in their pockets.
In our investment trust column of last week we covered the consequences for holders of the Fidelity China Special Situations trust of China’s recent crackdown on businesses of various types. Today we’ll look at the individual stock most directly affected among this column’s recommendations.
That we had such a stock may not have been obvious at first sight. This is because it is listed not in Shanghai, Hong Kong or even, like many Chinese firms, New York, but in Amsterdam. The stock is Prosus and its susceptibility to Beijing’s actions comes about because its biggest asset is a stake in Tencent, one of China’s digital giants, and Tencent has been very much in the Chinese Communist party’s sights.
Its shares slumped last week after the party ordered the company to end exclusive music licensing deals with major record labels. They then staged a partial recovery, only to be hit again yesterday when a Chinese publication linked to the official news agency likened online games produced by the likes of Tencent to “spiritual opium” for children.
Because its stake in Tencent dominates Prosus’s assets, its shares have suffered too. At the current price we are about 9pc in the red relative to our tip from September last year in euro terms, although the pound’s strengthening since then has resulted in an overall loss of 15pc.
We have yet to hear what Joe Bauernfreund of Asset Value Investors, who put us on to the stock, thinks of these events. But we can make several observations. First, Tencent is a hugely diversified company and the actions of the Chinese government, while hardly good news, should not have a material effect on its operations or profitability. Second, investors’ memories are often short and we expect shares in Tencent and Prosus to recover.
Third, as we explained in our original tip, Prosus is a way to gain exposure to Tencent at a big discount relative to buying the latter’s own shares. Hold on.
Questor says: hold
Ticker: AMS:PRX
Share price at close: €70.62
Update: tinyBuild
Another stock that has not so far delivered the goods for readers is tinyBuild, the American-based but Aim-quoted video games company: the shares have lost 4pc since our tip in April, although they have been a lot lower.
We tipped the stock on the strength of a conversation with Jon Hudson, co-manager of the Premier Miton UK Growth fund. Hudson tells Questor that earlier weakness in the sector was a result of changed working practices during the pandemic.
“While there has been no let-up in demand for good video games, across the sector numerous release dates have been pushed back as a consequence of working from home reducing collaboration between developers,” he says.
“TinyBuild’s release schedule is weighted towards the end of the year but no game has been delayed as yet and it is reassuring that the company decided to give all its employees an extra week of holiday in June – hopefully an indication that it is relaxed on release dates.” TinyBuild remained his fund’s largest holding at the end of June.
Questor says: hold
Ticker: TBLD
Share price at close: 245p
Update: Costco
When we tipped Carlsberg a week ago on the basis of its inclusion in the Chawton Global Equity Income fund run by Michael Crawford, we lacked space for his latest views on Costco, recommended here in December last year. The shares have gained 11pc since then in dollar terms, although again the rise of sterling has affected returns for British investors.
Crawford says: “Not much has changed at Costco other than a very welcome maintenance of healthy sales growth. After last year’s panic buying there was an expectation of weaker growth this year but in fact we saw a 15pc rise in underlying sales in the February-April quarter compared with last year.
“Trading at a new store in Shanghai has also been sufficiently encouraging for the company to plan to open several more in China. This is a stock I plan to hold into the indefinite future.”
Questor says: hold
Ticker: Nasdaq:COST
Share price at close: $435.07
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