Tencent stock plunges amid regulatory concerns

Stocks by Chinese tech giant Tencent have come under pressure again after officials from China's central bank discovered irregularities in the service of WeChat, China's largest instant messaging service. For many years, Tencent has been operating mainly in the gaming and new technologies industry. The company is also active in the financial, entertainment, media and advertising sectors.

Beijing has long prepared to fight the illegal flow of funds and aims to reduce systemic risks in the financial industry by tightening its control over individual companies. In January, the People's Bank of China announced that it would undertake a wide-ranging campaign by 2024 to effectively counter the so-called money laundering. Regulators have already spent hundreds of billions of dollars controlling a number of industries, including transport, e-commerce and even on-line education. As a result of Chinese regulations, the sentiment to invest in Asian equities has also declined recently due to growing concerns about delisting from Western stock exchanges.

WeChatPay misstatements were discovered in one of the routine inspections carried out by the People's Bank of China. Tencent's service likely transferred funds to illegal purposes such as gambling, according to the Wall Street Journal. The verifications process of users and sellers was also supposed to be very limited and therefore against law. Until now, Tencent has successfully avoided similar controls, while its main competitor in the Chinese market, the AliPay group, has not been so lucky.

News emerged that Tencenmt may receive an unprecedentedly high fine of up to several tens of millions of USD and which would act as a warning to other companies that fail to implement effective verification and security mechanisms.

The company's stock price fell to levels unseen since 2020. Naspers and Prosus, which invested in the Tencent startup over 20 years ago, are also facing severe selling pressure on Monday. YTD, Tencent's shares have already dropped by nearly 40%, despite upbeat financial reports for 2021.

At the same time, however, it is worth bearing in mind that Tencent remains one of the largest technology companies in the world, and analysts believe that the long-term prospects for the gaming market are favorable. Some investors may use Tencent recent weakness to their advantage. The final amount of the fine is not known yet, but it seems that regulators may also focus on other types of financial products, introducing AML regulations and KYC procedures.

Tencent (TME.US) stock plunged nearly 90% from its March 2021 highs. Currently price reached fresh all-time low around major support zone around $3.35 which coincides with lower limit of the descending channel and 127.2% external Fibonacci retracement of the upward wave launched in March 2020. Source: xStation5