Betting on a Tencent Rally Post-Earnings Is a Profitable Play

Tencent Holdings Ltd. investors will likely be celebrating tomorrow, if history is a guide.

The Chinese tech giant will announce its fourth-quarter earnings after Hong Kong’s equity market closes on Wednesday, an event that typically provokes an outsized rally. The stock climbed an average 1.8 percent on the day after the company’s quarterly releases in the past five years, compared with a gain of just 0.1 percent for the Hang Seng Index, according to data compiled by Bloomberg.

Analysts are already getting ahead of a post-earnings bounce: Goldman Sachs Group Inc. on Monday hiked its 12-month price target on Tencent by 22 percent, while Morgan Stanley boosted it by 10 percent. Tencent is projected to report 56 percent revenue growth for the fourth quarter.

Given the company’s track record as one of the world’s best performing in the past decade, bears are hard to find. Still, with a market value of $574 billion, and the biggest weighting on MSCI’s Asian benchmark, any misstep could be costly. The options market is implying a post-earnings move of 3.8 percent either way, which would make it the biggest earnings-day reaction since a 7.1 percent rally in August 2015.

Courtesy : Bloomberg
Photo : NDTV gadgets

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