Tencent Divestment Sends Chinese Internet Stocks Tumbling

Tencent’s own shares fell 4.3% Wednesday. Its market capitalization has declined by more than a quarter over the past 12 months to about $530 billion.

The broader Hang Seng Index ended 1.6% lower, after Hong Kong’s government reintroduced tighter social-distancing measures and said it would impose a two-week ban on passenger flights from eight countries. Some recent arrivals to the Asian financial hub have tested positive for the highly infectious Omicron Covid-19 variant, and the city has identified a small number of local cases.

The previous day, Tencent sold a 2.3% stake and reduced its voting rights in Southeast Asian e-commerce and videogaming company Sea Ltd. It had previously owned more than a fifth of the New York-listed firm, whose shares have multiplied in value since the start of the pandemic.

The sale took place just two weeks after the Chinese social-media and videogaming giant said it would divest itself of the bulk of its shares in internet retailer

JD.com Inc.

The events sparked worries among investors that China’s most valuable company could pare stakes it holds in other U.S.- or Hong Kong-listed companies.

“Tencent is feeling the pressure to reduce many of the holdings in the platform companies to avoid the appearance of [an] internet, online monopoly,” said Hao Hong, head of research and chief strategist at Bocom International. The likelihood that a key shareholder in many companies could reduce its stakes has created selling pressure across many stocks, he said.

The American depositary receipts of

Pinduoduo Inc.,

another Chinese online retailer that counts Tencent as a shareholder, tumbled 11% in U.S. trading Tuesday, while those of streaming-music platform

Tencent Music Entertainment Group

fell around 6%.

The broad selloff was largely triggered by Tencent’s sale, which suggests more divestments could be in store, said Chun Sung Oong, an internet analyst at brokerage UOB Kay Hian, who added that investors could be better off avoiding stocks of companies in which Tencent has invested.

Tencent, known for its ubiquitous WeChat app, has invested in hundreds of up-and-coming businesses, betting extensively on Chinese and overseas startups in areas such as gaming, social media, entertainment and electric vehicles.

The Shenzhen-headquartered firm still has significant stakes in many listed companies, but a large selloff in Chinese internet stocks over the past year has lowered the value of its giant investment portfolio. Tencent has said it would maintain business relationships with both Sea and JD.com despite the disposal of parts of its stakes.

China’s top market regulator, the State Administration for Market Regulation, on Wednesday separately said it found antitrust violations in more than a dozen past acquisitions or joint venture deals involving Tencent,

Alibaba Group Holding Ltd.

, JD.com or

Bilibili Inc.

The regulator said it fined the companies 500,000 yuan, equivalent to nearly $79,000, for each violation. Nine of them are related to Tencent.

While the fines weren’t large, they showed Beijing is still trying to rein in the country’s internet-technology sector following more than a year of regulatory actions that have included financial penalties and demands for many large companies to serve public interests better. Chinese regulators earlier this week passed a host of new rules for technology companies, covering their use of algorithms as well as cybersecurity reviews they must go through if they want to list overseas.

Also on Wednesday, the Cyberspace Administration of China proposed a range of revisions to its regulation of mobile apps, and said some operators will have to undergo security reviews before introducing new features or technologies that could influence public opinion or mobilize society.

Mr. Oong of UOB Kay Hian said he expects the cybersecurity regulatory landscape in China to remain strict in the near term. “I don’t think Beijing’s tech crackdown will slow down anytime soon,” he added.

—Anniek Bao contributed to this article.

Write to Dave Sebastian at [email protected]