Goldman Sachs – Tencent Music Plans Buyback After Block Trades Selling Archegos Holdings
Tencent Music Entertainment Group announced a $1 billion share buyback Monday, days after the Chinese online music company was caught up as one of the names hit by a liquidation of holdings by former Tiger Management trader Bill Hwang.
In an extraordinary series of block trades on Friday, banks including Goldman Sachs Group Inc. and Morgan Stanley wiped out $35 billion from the values of bellwether stocks, ranging from Chinese technology firms to U.S. media companies, as they sold off the holdings of Hwang’s Archegos Capital Management.
Tencent Music’s buyback plans represent 2.9% of the company’s current market value. The New York-listed firm’s stock slumped almost 20% on Friday after Goldman Sachs sold $6.6 billion worth of shares in it, Baidu Inc., and Vipshop Holdings Ltd. before the market opened in the U.S, according to an email to clients seen by Bloomberg News.
The sales were part of block trades worth more than $20 billion on Friday triggered by the forced offloading of Archegos Capital Management’s holdings after some positions moved against Hwang, Bloomberg News reported.
Some analysts said investors could take the declines as opportunities to pick up Tencent Music stock, since the Archegos sales weren’t based on fundamentals. The shares ended down just 1.3% Friday. Tencent Music has more than doubled over the past year.
“Longer term investors would be eager to pounce on the opportunity to buy these stocks for cheap, if they are sure it’s just driven by hedge fund unwinding,” said Vey-Sern Ling, a senior analyst with Bloomberg Intelligence.
Baidu, also sold off by the banks on Friday, could follow in Tencent Music’s footsteps. It has approximately $2.78 billion outstanding share repurchase programs that it could use for buying back its shares, Citi analysts wrote in a note.
Other analysts said, however, that not all Chinese tech stocks are worth buying. The global tech sector had been hit even before the Friday fire sale as investors increasingly rotated into stocks benefiting from an economic rebound rather than those gaining from people stuck at home during the pandemic.
“Tencent Music declined a lot mainly because of the margin call pressure from that hedge fund. For this stock, I think doing buyback is reasonable, because it’s an external and one-off issue and the company fundamentals have little changed,” said Steven Leung, executive director at UOB Kay Hian (Hong Kong) Limited.
“But for technology stocks in general, the price has yet to reach a cheap level for doing buybacks. Tencent Music may be just an individual case,” Leung said.
Tencent Music’s stock had slumped even before the unwinding of trades by Hwang’s Archegos family office. Its shares fell 27% last Wednesday after the U.S. Securities and Exchange Commission announced that it would begin implementing a law that could result in Chinese stocks being kicked off American exchanges if they don’t let American regulators review their financial audit papers. China has long refused to let U.S. regulators examine its companies’ audits, citing national security concerns.
— With assistance by Moxy Ying
(Adds a chart)