A Tencent investor has downgraded its stake. That’s not bad for Internet recovery in China.

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When a major shareholder starts to sell, it’s usually a flag. internet conglomerate

prosus

and the parent company

naspers

‘Decides Monday to reduce its stake in Chinese internet company’

Tencent Holdings
†

and the previous sale of

JD.com

equities begs the question of whether longtime internet investors are reassessing the outlook for China’s internet sector.

So far, though, it seems like a case of, “It’s me, not you.” Dutch conglomerate

prosus

(ticker: PRX.Netherlands), which owns the international holdings of the South African holding company

naspers

(NPSNY), broke its earlier promise that it would not sell Tencent (700.Hong Kong) shares until 2024. Analysts see it as a move for Prosus, which owned about 28% of Tencent, to restore the discount at which the conglomerate trades against its net asset value by using the sale of some of its Tencent shares to fund a buyback. .

Company said sales would be a small percentage of Tencent’s average daily trading volumereiterating their confidence in Tencent’s long-term value.

naspers

also announced that it has sold shares of

JD.com

(JD) received it as a special dividend from Tencent.

“Naspers is tackling the longstanding, excessive discount of about 50% at which it trades against Tencent,” said Marco Spinar, a portfolio manager with Neuberger Berman’s emerging markets equity team.

Part of that discount is due to the ownership of the Russian asset conglomerate – internet company UK and classified advertising company Avito that is offering it for sale. Both were cash-generating, so that creates its own hit, especially at a time when the market isn’t seeing money-losing internet companies in other parts of its portfolio in the best light.

The sharp slump in Chinese internet stocks, including Tencent, has not helped, nor has the company attempted to reduce the sharp discount at which it is trading to net asset value, said Ola El-Shawarby, senior emerging markets equity strategy analyst at VanEck. The company’s decision to make the sale of shares more structural and take into account the impact on Tencent’s shares is positive for Prosus and Naspers, she added.

It’s still unknown how much of its stake in Tencent the conglomerate wants to reduce and how much of the discount it wants to take away, El-Shawarby says. But she doesn’t see the move as a signal that the conglomerate has soured on Chinese internet stocks. Spinar also downplays such signals, noting that the company reiterated that it views Tencent as a core holding company with a bright future. Tencent shares fell 1.6% to HK$378.20, while Prosus shares rose 16% to Euro 61.44, while Nasper’s ADRs rose 21. % up to $29.72

The decision comes as China’s internet sector has seen a nascent recovery in recent weeks after Chinese regulators indicated it had. press pause on the regulatory crackdown that has plagued the industry over the past two years. The

KraneShares CSI China Internet

ETF (KWEB) is up 35% since the end of May, but is still up 48% in the past year.

With the shares of some internet giants down 50% or more from their highs, value managers have begun buying companies like Tencent and

Alibaba Group Holding

(BABA) takes the view that these companies will remain powerhouses. Their reflect ratings many of the concerns about increased competition, more diminished growth prospects, with Tencent seeing a slowdown in its core gaming business, for example, as well as geopolitical noise.

Spinar is in the camp that both Tencent and JD continue to like, noting that growth will resume as China’s Covid lockdowns ease and more supportive policies are implemented to stabilize the economy.

But others are starting to feel lukewarm again about Chinese stocks after the run over the past few weeks. After become tactically positive On Chinese equities in May, Larry Brainard, TS Lombard’s chief emerging markets economist, is now neutral again after the 10% rise in the MSCI China index during that time. He noted that the call was tactical – like in the short term – and the stock faces more problems in the longer term.

“The Chinese bulls have resurfaced, but now is not the time to be optimistic,” Brainard warns. One big concern: China is sticking to its tough Zero-Covid policy, which will continue to put a brake on its economic growth. And there is little in China’s economic stabilization policy aimed at helping consumers, which are needed for recovery.

Write to Reshma Kapadia on [email protected]