Tencent Leads Asian Internet Stocks Lower Amid Selloff

Tencent Holdings Ltd. dropped for a second day to the lowest in more than four months as Asian Internet stocks sank after a U.S. rout amid growing concern that companies in the industry are overvalued.

Tencent slid 3.8 percent to HK$473.80, the lowest close since Dec. 24 and the biggest drag on the Hang Seng Index. The stock has lost 25 percent since March 6, after a 1,266 percent surge during the previous five years sent its price-to-earnings ratio to the highest level since 2008. After the much-awaited initial public offering of Chinese e-commerce company Alibaba Group Holding Ltd. was filed yesterday in the U.S., shareholders Yahoo Japan Corp. and SoftBank Corp. declined.

“Internet stock valuations are looking stretched,” Desmond Chua, a strategist at CMC Markets in Singapore, said by phone. “Earnings growth expectations are lofty and may not be realistic given increasing competition in the industry.”

Technology companies have led gains in Asian shares during the past 12 months on speculation growing demand for social networking, e-commerce and online games will boost earnings and drive takeovers in the industry. Speculation that the rally has gone too far is building, with Twitter Inc. plunging 18 percent yesterday to its lowest close since its November listing.

The Bloomberg Asia Pacific Internet Index fell 2.7 percent to the lowest since Nov. 28, paring its gain during the past 12 months to 25 percent. The MSCI Asia Pacific Index slipped 3.6 percent in the same period.

Earnings Multiples

The Bloomberg Internet gauge is valued at 25.8 times estimated earnings for the current fiscal year, more than twice as expensive as the broader regional index and near the biggest premium since 2006, according to data compiled by Bloomberg. Tencent trades at a multiple of 33.

Alibaba Group, which rode China’s emergence as an economic superpower over the last 15 years to become a massive online marketplace, filed yesterday for what could become the largest U.S. initial public offering ever. The company might raise as much as $20 billion, topping a $19.65 billion offering by Visa Inc. in 2008, data compiled by Bloomberg show.

“We strongly believe that much of the good news in regards to the Alibaba IPO has been baked well into Softbank’s share price,” Amir Anvarzadeh, a manager of Japanese equity sales at BGC Partners in Singapore, said in an e-mail. “Moreover, we also expect U.S. investors to divest from Softbank and Yahoo as most will want direct exposure to Alibaba without the telecom businesses, which are facing pricing pressure.”

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