Trump's WeChat ban wipes $30bn off Tencent's value

Before Friday’s drop Tencent was worth $686bn, making it the world’s eighth-largest company by market capitalisation

epa08588898 An icon of Chinese internet media app WeChat (C) is displayed among other apps on an iPhone, in Beijing, China, 07 August 2020. According to media reports, US President Donald Trump has issued an executive order to ban US transactions with Chinese companies Tencent and ByteDance.  EPA/ROMAN PILIPEY
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The Trump administration’s move to ban US residents from doing business with Tencent Holdings’ WeChat app rippled through Chinese markets, erasing $30 billion from the Internet giant’s market value and sending the yuan to its biggest slump in two weeks.

The US president’s executive order fuelled concern that the deteriorating US-China relationship will weigh on companies, economies and markets. Confusion over the scope of the order led to volatile trading on Friday, with Tencent plunging more than 10 per cent before paring its loss to 4.3 per cent at 1:53 pm in Hong Kong. A US official later clarified the ban will only cover WeChat.

The vaguely-worded order raised concern a ban could hammer not just the use of WeChat and WeChat Pay in the US but extend to business relationships with some of America’s largest corporations. The world’s biggest games publisher by revenue in 2019, according to Newzoo data, Tencent collaborates with US industry leaders like Activision Blizzard and Electronics Arts. It also holds a large stake in Fortnite maker Epic Games and owns League of Legends developer Riot Games.

Before Friday’s drop Tencent was worth $686 billion, making it the world’s eighth-largest company by market capitalisation and bigger than Berkshire Hathaway. Its huge size means it occupies a dominant position on global indexes. The firm accounts for more than 6 per cent of MSCI’s developing nation gauge and 4 per cent of its Asia Pacific measure.

Mr Trump’s order on WeChat came after a similar injunction against ByteDance’s TikTok, the viral video service the White House accuses of jeopardising national security. But Tencent is at the heart of communications between people and businesses within China and abroad, as the operator of WeChat.

“The US government is expected to follow up with more measures targeting Tencent,” said Steven Leung, executive director at UOB Kay Hian (Hong Kong).

“Tencent’s overseas expansion map now looks a bit uncertain, since some M&A deals, especially if its targets are based in the US, will face challenges.”