Tencent Holdings once dropped as much as 6% amid rumors of a "tax increase," but are these rumors just baseless speculation?

On the morning of February 3rd, influenced by rumors of tax increases, Tencent Holdings (00700.HK) once dropped more than 6%, reaching a low of 561 HKD. By midday, the decline narrowed to 3.09%, closing at 580 HKD.

Tencent Holdings has been declining for over four consecutive months, and recent Yuanbao red envelope activities have not been able to boost the stock price.

As of press time, no relevant parties have responded to the rumors of tax increases. Industry insiders believe that the credibility of the tax increase rumors is relatively low; this rumor is a typical market noise amplified during times of emotional fragility. On the other hand, based on the Yuanbao red envelope activities, Tencent indeed cannot fully avoid the industry’s competitive pressures. In the short term, the stock lacks an offensive catalyst, and the development of new businesses like artificial intelligence could further meet market expectations.

Pan Jun, an investment manager at Cheese Fund, told First Financial that Tencent’s fall below the 600 HKD mark is partly due to a mismatch between high artificial intelligence capital expenditure and short-term realization uncertainties. Although the Yuanbao red envelope activity drew market attention, it was interpreted as a sign of a new round of money-burning competition. Coupled with some data in January falling short of expectations, risk aversion sentiment increased. On the other hand, Tencent cannot completely avoid industry competition. Although its current valuation is at a historic low and has defensive qualities, the stock lacks an offensive catalyst in the short term.

Wen Tianna, CEO of Boda Capital International, told First Financial that Tencent recently dropped to a near six-month low. While the Yuanbao red envelope activity sparked downloads and discussions, it did not lift the stock price. The core logic is that the market is already wary of the “money-burning for growth” competition model. Red envelopes bring short-term traffic, but investors focus on user retention and AI stickiness rather than instant daily active users. Chinese internet giants are fiercely competing in artificial intelligence (Tencent Yuanbao, Baidu Wenxin, Alibaba Qianwen, etc.), which also intensifies profit margin pressures, leading to short-term risk aversion.

Li Zeming, Investment Director at Red Ant Capital, stated that the decline of tech stocks on the morning of February 3rd was clearly influenced by the tax rumors. Not only Tencent, but currently all comments suggest that the credibility of this rumor is very low. It is unlikely that there will be modifications related to VAT. However, since there has been no official statement, the market has seen telecom companies like China Mobile (600941.SH) experience declines due to VAT increases. The current market tendency for tech stocks is to hedge risks first. Unless there is an official clarification after market close or on the same day, confidence may be restored. Otherwise, this issue will continue to trouble the entire internet sector in the short term.

Yu Fenghui, Advisor at the Hong Kong Stock 100 Research Center, said that for large companies like Tencent, the key lies in how to restore investor confidence and achieve long-term growth through strategic adjustments and business innovation. As the internet industry matures and technology develops, Tencent needs to continuously invest in emerging fields such as artificial intelligence, cloud computing, and big data to maintain its technological leadership.

“Especially in the field of artificial intelligence, this not only helps Tencent develop new products and services but also improves the efficiency and user experience of existing businesses,” he said.

A Hong Kong-based securities analyst specializing in internet sectors also commented that the current rumors of increased taxes contradict current policy directions. The current policy focus is on “stabilizing growth, promoting innovation, and supporting industrial upgrading.” Key support areas include internet platform economies and overseas expansion of gaming. Implementing a “one-size-fits-all” tax increase on critical industries contradicts the overall policy orientation. These rumors are likely market noise, possibly stemming from over-interpretation or misinformation of a single policy document, amplified during times of emotional fragility. “The core drivers of stock prices for internet giants remain their own business growth, the commercialization of artificial intelligence, and profit improvement. Short-term emotional disturbances do not change the long-term logic,” the analyst added.

(Original article: First Financial)