Why the Afterpay share price is yet to be impacted by Tencent’s US troubles

Why the Afterpay share price is yet to be impacted by Tencent's US troubles

The Afterpay Ltd (ASX: APT) share price is proving itself to be a Teflon stock. Bad news just doesn't seem to stick.

Brendon Lau

Brendon’s passion for shares started by accident in 2003 and he has worked in various roles around capital markets ever since as a trader, stock analyst and markets reporter with the Australian Financial Review. Most of his wealth has come from share investing than any other asset class, and that has given him the financial freedom not to work full-time, if he chooses to. Brendon is a medium to long-term investor who aims to hold positions for a year or longer and is focused on fundamental analysis, although he will occasionally use technical indicators to time his entries and exits. Brendon has an MBA from Melbourne Business School and is RG 146 certified. He lives in Melbourne with his wife, three kids and two dogs.

Published August 10, 2020 12:38 pm AEST

The Afterpay Ltd (ASX: APT) share price is proving itself to be a Teflon stock. Bad news just doesn't seem to stick.

The BNPL superstar recovered from an early sell-off to surge 1.7% to $71.91 in late morning trade when the S&P/ASX 200 Index (Index:^AXJO) increased 1%.

The trouble facing Afterpay's substantial shareholder Tencent Holdings Ltd isn't worrying shareholders. The sell-down of the stock by another substantial, Lone Pine Capital, is also quickly overlooked by the market.

hand holding mobile phone about to make credit card payment — Image source: Getty Images

Tencent tailwind turning into headwind

But it's Tencent's US problems that is a little more concerning. The China-based conglomerate's entry to Afterpay's register three months ago was touted as a big win as it sent the stock jumping from $29.16 to $47.41 in May, according to the Australian Financial Review.

Tencent owns the popular WeChat app and is regarded as one of the most successful digital platforms businesses in the world.

The investment by Tencent will help the fledging fintech expand more rapidly into the global digital payments space, which includes the lucrative US market.

Chinese tech companies in Trump's cross-hair

But US President Donald Trump is moving to ban WeChat and stop US companies from doing business with Tencent and ByteDance (TikTok's owner). Trumps accuses both of spying on users on behalf of the Chinese government.

The ban could conceivably turn Tencent into a liability for Afterpay if the US government expands the restrictions to all of Tencent's commercial interests.

Should Afterpay shareholders be worried?

The reason why the market isn't too worried is because the White House said it won't be going after video game companies, reported PC Gamer.

Tencent owns Riot Games, which makes games like League of Legends and Valorant. It also holds a 40% interest in Fortnite creator Epic Games and 5% of Activision Blizzard, among many others.

If these game developers aren't impacted, then it's probable that Afterpay will also escape unscathed.

Also, investors can take comfort in the fact that Tencent doesn't have majority control of Afterpay and that other US companies have made investments in the ASX stock.

Why investors should remain on alert

But Trump is anything if not unpredictable and the rocketing Afterpay share price leaves little room for bad news.

Afterpay jumped by close to 150% since the start of the 2020 calendar year, making it the best performer among the WAAAX tech darlings.

The Appen Ltd (ASX: APX) share price is the second-best gainer with a 66% increase, followed by the Xero Limited (ASX XRO) share price on 14%.

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