Tencent’s plan to sell more of its shares sparks market selloff fears

Following a strong rally, a plan by Tencent Holdings Ltd. to further reduce its stake in the company prompted concerns that more investors may look to take profits.

The Hang Seng Tech Index fell as much as 2.9% Tuesday, the most since June 22, before paring some losses. Tencent fell as much as 5.8%, the most in nearly six weeks, after Prosus NV said on Monday 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.

The big shareholder sale is hurting the whole market sentiment, said Banny Lam, head of research at CEB International Investment Corp. It's not surprising to see people taking profit or rotating among sectors, as tech stocks have had a good rally. Prosus, an arm of South African internet giant Naspers Ltd., sold almost $4 billion worth of stock in JD.com that it received as dividends from investee Tencent, saying on Monday that the e-commerce firm didn't fit with its broader strategy.

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

Industry insiders point to a more downbeat picture despite a softening regulatory stance. China adherence to Covid Zero policy and sporadic infections means a full reopening may still be far away and will likely be a drag on the economy.

Justin Tang, head of Asian research at United First Partners in Singapore, said that the plan by Prosus was taken as a sign that the rally had hit a near term peak amid an uncertain macroeconomic environment and the ongoing Covid situation.

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

If you're too old for an internship, try a returnship instead.