Tencent Holdings’ shares dropped nearly 8% in Hong Kong after being added to the U.S. Department of Defense’s list of “Chinese military companies.”
This led to a similar 8% decline in the company’s U.S. depository receipts on Wall Street.
Other Chinese companies added to the list included battery maker CATL, a key supplier for automakers like Ford and Tesla.
CATL’s shares dropped by as much as 5.6%, before recovering slightly to a 2.8% decline in Shenzhen.
The National Defense Authorization Act of 2024 stipulates that the DOD will be prohibited from procuring goods or services directly from entities on the list starting in June 2026, and indirectly from June 2027.
In response to the decision, Tencent stated that its inclusion on the list was “clearly a mistake.”
“We are not a military company or supplier. Unlike sanctions or export controls, this listing has no impact on our business,” the company added. CATL also called the designation “a mistake” in a response, saying it “is not engaged in any military related activities.”
Tencent has a good chance of managing to secure its exclusion from the list through U.S. courts due to the company’s business model, which primarily revolves around social networking and online gaming, said Ivan Su, senior equity analyst at Morningstar.
He estimates the fair value of Tencent shares at HK$704 each, which represents an 86.14% upside from the current share price of HK$378.2.
Meanwhile, Vincent Su, also a senior equity analyst at Morningstar, mentioned that CATL’s inclusion on the list could deter U.S. customers from purchasing the company’s energy storage system (ESS) batteries in the future.
The U.S. has been taking measures to limit the transfer of advanced technologies to China.
