Traders Are Betting on Tencent Over Alibaba as Stocks Swing
Traders Are Betting on Tencent Over Alibaba as Stocks Swing
(Bloomberg) -- Traders looking to cash in on the wild swings in Chinese internet stocks this week are betting that the two biggest firms will run in opposite directions.
A strategy of matching a bid on Tencent Holdings Ltd. with a short position on Alibaba Group Holding Ltd. would have gained 13% this month in Hong Kong, excluding fees and dividends. That would be the biggest monthly return since June. The so-called pair trade strategy combines opposing positions in stocks that are typically highly correlated.
Beijing last week abruptly halted the initial public offering of Jack Ma’s Ant Group Co., casting a shadow over his Alibaba business. Meanwhile, Tencent’s strong quarterly results and reassurance that it can navigate an uncertain regulatory landscape have helped boost its stock.
“The momentum for Tencent is indeed stronger and their longer-term growth is rather promising,” said Alex Wong, director of asset management at Ample Capital Ltd.
The divergence, on the surface, may seem confusing. Beijing’s latest move to regulate Big Tech was on full display this week after issuing new guidelines to curtail monopolistic practices. The clampdown triggered a $290 billion sell-off, as investors scrambled to assess risks.
On Thursday, shares of Shenzhen-based Tencent were boosted after management reassured analysts about its ability to manage the risks of an antitrust crackdown by Chinese regulators.
“From the regulatory perspective, the concern for Tencent has eased as it started some time ago already, while Alibaba is facing scrutiny on Ant now,” Wong added.
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