Buy Tencent despite tariff concerns, this portfolio manager says

Chris StuchberryWhen it comes to Chinese tech giant Tencent Holdings (OTC:TCEHY), you can stop worrying about the Trump administration’s protectionist tariffs and start buying the stock, says Chris Stuchberry, portfolio manager for Wellington-Altus Private Wealth, who argues that investors shouldn’t overlook Tencent’s unrivaled position in China’s digital space.

Shenzhen-based Tencent has seen its share price battle ups and downs over the past 12 months. It hit a record high of $61.00 in late January of this year, only to subsequently drop 19 per cent of its value since (all figures in US dollars). But the stock’s longer-term trajectory has been impressive, with Tencent’s share price starting its climb from the high teens in early 2016 to where it currently sits at about $49.00.

Much of that growth has been attributed to the company’s pervasiveness within China’s digital landscape. Tencent owns online gaming platforms, social media networks including WeChat and Qzone, mobile payment services, cloud storage, investment services, streaming and artificial intelligence … the list goes on. Currently, 55 per cent of mobile internet usage in China runs through Tencent’s platforms.

Stuchberry says that Tencent’s dominance in China really has no parallels in the West.

“Tencent owns basically the platform that so much of the digital is built on [in China],” Stuchberry told BNN Bloomberg recently. “In North America, it’s fragmented, with Google, Facebook and Amazon doing different parts of your digital life. Tencent has a better control over that.”

In May, the company announced its first quarter earnings, which featured total revenues of $11.7 billion, a whopping 48 per cent increase over Q1 of 2017, and profit of $3.8 billion. Tencent currently boasts one billion users on its WeChat platform and 632 million monthly users on Qzone. With just 14 per cent of its revenue coming from advertising (compared to about 90 per cent for companies like Google and Facebook), Tencent is said to possess plenty of room for growth.

And while investing in Chinese companies in these might seem like playing with a loaded gun amid current tariff battles between the United States and its trading partners, Stuchberry says the risks for Tencent are minimal.

“You could make the point, ‘Hey, tariffs — why are you buying a Chinese company?’” he says. “This is a service company. They’re not shipping steel, and most of their revenue is generated in China.”

“So, we’re happy on owning Tencent for the long-term,” he says.