Chinese companies have been battered in recent months among delisting, regulatory and geopolitical fears. In addition, the Hang Seng index plunged nearly 5% today, further adding pain to Chinese names. However, the bad news doesn’t end there. This morning, it was reported that Tencent (OTCMKTS:TCEHY) could potentially receive a record-breaking fine for violating anti-money-laundering policies. Shares of TCEHY stock are currently down more than 5% and reached a new 52-week low of $41 during intraday trading.
Why Is TCEHY Stock Down Today?
Through its investigation, the People’s Bank of China (PBOC) concluded that WeChat Pay violated several regulations. WeChat Pay is a subsidiary of Tencent that is used to exchange payment between users. According to people close to the matter, the PBOC found out that WeChat Pay “allowed the transfer of funds for illicit purposes such as gambling.” WeChat Pay was also deemed non-compliant with rules that required Tencent to identify transacting users and merchants.
Central bank regulators discovered the violations after performing a routine inspection of WeChat Pay last year. Last January, the PBOC announced that it would begin a campaign to enforce money-laundering regulations. The extent of Tencent’s fine has not been disclosed yet, although regulators have said it could be in the hundreds of millions of yuan. In addition, the investigation is Tencent’s first direct government probe, which it previously was able to avoid.
What’s Next For Tencent?
Chinese stocks like Tencent face a host of potential macroeconomic risks. For starters, the country is facing a spike in Covid-19 cases. In response, the Chinese government announced over the weekend that it would be imposing production halts in Shenzhen. Shenzhen, known as China’s “Silicon Valley,” is a major manufacturing hub in the Guangdong province.
Furthermore, Beijing has imposed several restrictive regulatory policies on Chinese companies over the past year. These policies have placed an emphasis on financial entities, such as Tencent’s WeChat Pay.
For now, investors should weigh whether the macroeconomic risks warrants an investment opportunity into Tencent. The company remains an innovative multinational conglomerate that has rewarded investors well in the past. Since it become tradable on U.S. exchanges in November 2008, TCEHY stock has appreciated more than 2,900%. In comparison, the S&P 500 has gained about 430% since November 2008.
On the date of publication, Eddie Pan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.