What does Prosus sale of Tencent shares say about Chinese tech? What does Prosus sale of Tencent shares say about Chinese tech? What does Prosus sale of Tencent shares say about Chinese tech?

What does Prosus sale of Tencent shares say about Chinese tech?

Equities 6 minutes to read
Peter Garnry

Head of Equity Strategy

Summary:  The 2% reduction in its Tencent ownership is being portrayed by Prosus as a wish to close the valuation gap between the market value of Prosus and its underlying investments including Tencent. But why is the company reducing its shares in arguably one of the best technology companies in the world with 20% p.a. revenue growth rate expected until 2023 and huge free cash flow generation? Maybe the company is getting more worried over the trajectory of Chinese technology regulation. We take a look and what it means for investing in Chinese technology stocks and whether investors should begin to look at the emerging consumer sector instead.

Prosus announced today that it has sold a 2% stake in Tencent worth $14.7bn reducing its stake to 29% to close the valuation gap that is that of Prosus (*) itself and the value of its underlying investments including Tencent. The company says that it will use its funds for investing into food-delivery, payments, and fintech broaden its portfolio of companies with exposure to digitalisation. The company also said that its exposure to South Africa is driving the valuation and that the company will do more to reduce it. The most interesting question that arises of this sale of Tencent shares is whether it is really about a valuation gap or not.

Tencent is arguably one of the most powerful technology companies in the world with a phenomenal business and free cash flow generation tapping into China’s digitalisation. The company is expected to grow revenue by 20% per year until 2023 almost doubling revenue and free cash flow. This type of profitable growth asset does almost not exist anywhere else in the world. Tencent is also paying out dividends with an indicated yield of 0.26% which at Prosus’ previous ownership would translate into $616mn in dividends. Prosus could have divested its holdings over time through investing Tencent dividends and used its market value to raise billions in equity to fund new investments. The company was not forced to sell Tencent shares. Unless of course the company views the emerging Chinese technology regulation as a major game changer.

Source: Saxo Group

Are Chinese consumer stocks the next growth journey?

The recent clampdown on Chinese technology companies and created a repricing of these companies causing the regulatory risk premium to increase. Many of the big Chinese technology companies are now trading at attractive valuations compared to their American counterparts, but the main question is whether the discount could grow. The sometimes confusing language from Chinese regulators has increased the uncertainty on how this future regulation will impact long-term earnings growth of Chinese companies.

Our view is that the uncertainty over big Chinese technology companies and technology platforms within social media, advertising, gaming and fintech could continue to linger for years as these issues are complex to sort out for the Chinese government. As a result, we believe the Chinese consumer companies within the consumer discretionary and staples sectors could take over as the next growth engine and darlings of investors. Consumer oriented companies are less about personal data and control, which is a potentially threat the policy objective of the Chinese government, and more about classic products, distribution and brands riding the wave of the rising middle class in China. Tomorrow, we will be launching our next equity theme basket called Chinese consumer and technology, which will focus on stocks within the private sector that provides the most interesting exposure to China’s long-term future.

(*) The parent company of Prosus is South Africa Nasper which is an investment company that successfully invested $32mn in Tencent back in 2001 for a 31% stake. In 2019, Nasper spun out its international holdings of internet stocks in a separate company called Prosus listed on the Amsterdam Stock Exchange and Johannesburg Stock Exchange.


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.