Tencent's US$251b jump in value triggers frenzy in shares, options

Hong Kong

HONG KONG'S equity traders can't get enough of Tencent Holdings, the US$950 billion giant that's on pace for its biggest ever monthly gain.

They're paying up for bullish derivatives tracking the Chinese Internet firm, buying thousands of January call options that expire on Thursday. The price of one Tencent contract - which bets the stock will rise past HK$800 (S$137) by expiry - surged as much as 118,300 per cent on Monday. Traders also rushed to offload their bearish puts, with one of the most-traded contracts losing more than 84 per cent in value.

The stock rallied 11 per cent on Monday to HK$766.50, its biggest gain since October 2011. Hong Kong's Hang Seng Index benchmark rose 2.4 per cent, closing above the key 30,000 point-level for the first time since May 2019.

Tencent has become a prime target for mainland traders flooding record amounts of cash into Hong Kong-listed shares this year, with net purchase of the stock accounting for roughly a quarter of total money coming in, according to exchange data. The buying frenzy has also boosted Tencent's market value by about US$251 billion this year, the most worldwide, according to data compiled by Bloomberg. Tesla is the second-largest gainer, up US$134 billion.

Tencent shares now trade at nearly 40 times analysts' estimated earnings for the next 12 months. While that's well above the average of 30 since Bloomberg began tracking the data in 2005, it is still below the recent peak multiple of 42 reached in 2014 and 2018. It reached 65 at the height of China's equity bubble in 2007.

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On Monday, analysts at Citigroup lifted their target price on the firm by 19 per cent to HK$876, the highest among analysts tracked by Bloom-berg, citing the company's market-share expansion and growth in the gaming sector and other digital businesses.

With the recent run-up, Tencent is trading at its highest price on record. BLOOMBERG