In a move that could reverberate across global markets, the United States Department of Defence has added Chinese tech giant Tencent to its Chinese Military Company (CMC) list. The decision has elicited an immediate reaction in South Africa, where JSE-listed entities Prosus and Naspers—major shareholders in Tencent—have experienced a notable decline in their net asset values and share prices.
Alongside Tencent, companies such as CATL and Autel Robotics Co. have also been flagged, but analysts have suggested that the placement on the CMC list carries no legal ramifications. A spokesperson for Tencent sought to clarify the designation, asserting, “This is clearly a mistake, as we are not a military company or a supplier. Unlike sanctions or export controls, this listing has no impact on our business.”
Market analyst Simon Brown weighed in on the situation, stating in an interview, “The placing of Tencent on the CMC list is bad for the stock, but less so for the company commercially. They will likely take it to court, which will take time, but it takes serious shine off the share price.” The implications of this classification appear to outweigh actual operational impacts, as Tencent has no commercial engagements in the US market.
Furthermore, Steve Minnaar, head of global equities at Abax Investments, indicated that the fallout from the US’s decision is primarily financial for Prosus and Naspers, which together hold a 24% stake in Tencent. “Prosus/Naspers (effectively the same entity) owns 24% of Tencent, but have no management control. As such, the impact is mostly financial in that it affects their Net Asset Value (NAV),” he explained. Notably, Tencent comprises approximately 80% of Prosus’s NAV, with the remaining percentages tied to smaller investments.
In the wake of these developments, both Prosus and Naspers saw significant drops in their stock prices during afternoon trading yesterday—declining by 8.4% to R680.91 and 8.3% to R3,772.84, respectively—contributing to a 0.6% easing of the JSE All Share Index to 84,217 index points. The sheer weight of Prosus and Naspers on the local bourse means their fluctuations have a material impact on overall market sentiment.
Minnaar noted the stark implications of such sentiment for the South African market: “Putting this into perspective, the impact on the SA market is akin to if Mr Price, Anheuser-Busch InBev, or Aspen disappeared. Prosus and Naspers provide a deeply discounted entry into Tencent and some other smaller investments, some also with good prospects while being debt free.”
Despite the apparent negativity surrounding Tencent, which analysts suggest reflects an ongoing trend of US sanctions targeting Chinese firms under the pretext of military connections, there lies a broader coordination at play. The US has shifted increasingly towards an ‘America First’ narrative, and designations like these seem aimed at curbing the competitiveness of significant Chinese enterprises on the global stage.
This is not the first time a Chinese company has come under scrutiny. In January 2021, the Department of Defence included smartphone manufacturer Xiaomi on the CMC list, but after legal challenges, the company was removed just five months later. Similarly, Advanced Micro-Fabrication Equipment Inc. was also taken off the list in the face of claims that the designation was unwarranted and irrational.