26 October 2016
Tencent, led by chairman Ma Huateng, saw its first-quarter online advertising revenue more than double to 2.72 billion yuan. Photo: HKEJ
Tencent, led by chairman Ma Huateng, saw its first-quarter online advertising revenue more than double to 2.72 billion yuan. Photo: HKEJ

Why internet stocks will be king — if they’re not already

Hong Kong investors who once shied away from technology stocks are having a change of heart, with the internet becoming a driving force for the global economy.

Some, however, remain wary about another bubble.

It was not long ago when internet speeds were below one megabyte (MB), making it impossible to watch online video clips.

Now, 100 MB or even 1,000 MB is commonplace, enabling a host of devices including smartphones which are transforming our lives.

In the US, about half of adults get their information from the internet but online media accounts for just 30 percent of the advertising market.

The mismatch indicates enormous market potential.

There’s plenty of room for online media to end the market dominance of traditional media in the advertising market.

Also, online media’s multiple platforms, ranging from desktops to smartphones and tablets, offer improved customer feedback.

Fight for online dollars

Tencent Holdings (00700.HK) said its first-quarter online advertising revenue more than doubled to 2.72 billion yuan (US$438 million) from a year earlier thanks to its instant messaging app WeChat.

Online advertising now accounts for 12 percent of group revenue compared with 6 percent a year ago.

China’s mobile media advertising revenue is expected to rise to US$6.26 billion in 2018 from US$1.98 billion last year, with an annual growth rate of 33 percent compared with 29 percent annual growth in the same period in the US, according to data from Magna Global.

WeChat, the No.1 social media platform in China, has 5.3 percent market share in online and mobile media advertising, according iResearch.

By contrast, search engine Baibu has 34 percent and Alibaba 22 percent.

Tencent has massive growth potential in online advertising revenue in the years ahead.

Investors should consider Tencent, HSBC, Hong Kong Exchanges & Clearing (00388.HK), Ping An Insurance Group Co. of China (02318.HK) and China Mobile (00941.HK) in the present market correction.

Temporary blip

The US dollar continues to lose strength against the euro after a recent issue of eurobonds closed the rate gap.

European and US banking stocks have outperformed the benchmark, a sign global economic growth is picking up.

The recent fall in Hong Kong shares is nothing more than a temporary blip which offers an opportunity for consolidation.

Banking stocks are a gauge of economic strength.

The SPDR S&P Regional Banking ETF (KRE) is close to its April 1, 2014 peak. European banking stocks are moving steadily higher.

Banking plays are sensitive to economic cycles, so the outperformance indicates that the market is discounting any major financial risk.

In the West, rising yields for government bonds with long maturities will boost the bottom line for banks.

Meanwhile, HSBC Holdings Plc. (00005.HK) has shown a mixed performance since 2007.

The stock had outpaced the benchmark until mid-2013 when it began to sputter, partly due to worse than expected earnings and hefty regulatory fines.

The British bank is studying a proposal to move its headquarters from London and spin off its loss-making Latin America business.

This article appeared in the Hong Kong Economic Journal on May 15

Translation by Julie Zhu

[Chinese version中文版]

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columnist of the Hong Kong Economic Journal

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