[ET Net News Agency, 07 January 2025] Despite reports of Trump's tariffs easing and the
US Dollar Index falling, the US has recently been frequently imposing sanctions on Chinese
companies. The latest move by the US Department of Defense includes Tencent (00700) and
CATL (300750) among prominent tech enterprises in the military enterprise list. This has
deterred foreign investors from buying related shares. Tencent opened low by 7%, dragging
down the Hang Seng Index by 186 points at the open. Although Tencent's losses narrowed
after the market opened, leading to a rebound in the Hang Seng Index, Xiaomi (01810)
joined the selling spree during trading, causing Tencent to fall further. After 11 am, the
Hang Seng Index continued to decline, dropping by 379 points or 1.9% at midday, closing at
19,309. This marks the first time since the policy market rally in September last year
that the index fell below the hundred-day moving average (around 19,440), hitting a new
low in nearly a month and a half, with a turnover exceeding HKD 115.5 billion.
The Hang Seng China Enterprises Index stood at 6,982, down by 152 points or 2.1%. The
Hang Seng Tech Index reported 4,290, a decrease of 104 points or 2.4%.

"Yuen Che Hay: Hang Seng Index will see a decline but it is worth deploying at the low"

The US Department of Defense recently updated the list of Chinese military enterprises,
including Tencent (00700), CATL (300750), and China Merchants Port (00020). Although the
list does not come with conditions limiting commercial activities, the increased sanctions
risk has raised market concerns. Tencent's ADR fell in the evening, closing 7% lower than
the previous day's closing price. Tencent's Hong Kong stocks also fell by about 7% in the
first half of the day. The Hang Seng Index was impacted by this news, opening nearly 200
points lower. As worries expanded during trading, the Hang Seng Index's decline widened to
over 300 points. Yuen Che Hay, the Co-Director of Investment Strategy of Quam Asset
Securities, told ET Net News Agency that even without unfavourable news from the US, Hong
Kong and A-shares have shown weakness since the New Year. Recent early interventions by
the central government have also signalled an undercurrent in the market.
Regarding the current market conditions, Yuen Che Hay believes that the market has
already anticipated a downward adjustment. While not a significant drop of 1,000 points,
it would not be surprising if the Hang Seng Index tests 19,000. Before Trump officially
takes office as President of the United States, Yuen Che Hay expects a plethora of
ambiguous news to emerge, causing market volatility. He advises investors not to rush to
bottom-fish too early but to wait for the short-term changes in US-China relations after
Trump takes office to settle before deploying in the stock market. However, he emphasizes
that the bottom of the Hong Kong stock market sentiment is currently unknown. Investors
who have not deployed new positions for the New Year might consider starting with low
deployments, such as dividend stocks.

"Tencent at HKD 380 presents a good opportunity"

The US Department of Defense adding several companies to the military enterprise list
has drawn attention, especially Tencent, known as the "King of Stocks" in the Hong Kong
market. A Citigroup research report pointed out that Tencent's inclusion in the list does
not necessarily indicate sufficient evidence of ties to the military. It is believed that
Tencent will fully cooperate and resolve misunderstandings with the US Department of
Defense. Given that the fundamentals remain unchanged, selling off is seen as a buying
opportunity. Tencent opened 7% lower this morning, reaching the HKD 380 mark. The decline
gradually narrowed in the morning but fell back to near the HKD 380 level before the
midday break, with the put-call ratio around 53:47.
In terms of fundamentals, Yuen Che Hay does not believe that Tencent's inclusion in the
list will immediately lead to a significant loss of business. However, large investors are
inevitably cautious, watching whether major shareholder Naspers, the South African major
shareholder under Prosus, will accelerate the reduction of Tencent holdings, adding
short-term selling pressure on Tencent. He pointed out that Tencent is not currently on
the most severe list restricting commercial activities, but uncertainties are expanding.
It remains unknown whether Prosus will quickly divest Tencent holdings. He believes that
investors should currently observe for one to two days to see how the news is digested.
Yuen Che Hay concluded that with the continuous rumours before Trump takes office, there
is no need to rush into bottom-fishing. However, he considers the HKD 380 level as an
important threshold. Those interested in entering should consider making a move, with the
amount not exceeding half of their intended investment.