Chinese technology giant Tencent announced a quarterly report that largely missed market expectation on Wednesday evening.

Its 2Q profit fell 2% y-o-y to 17.9 billion yuan versus 19.6 billion yuan expected, marking the first quarterly profit fall in over a decade. Revenue rose 30% y-o-y to 73.7 billion yuan, which is also below earlier forecast of 77.3 billion yuan. The company’s outlook is also overshadowed by slower pace of growth as regulator is trying to tighten the rules over mobile gaming industry.

Tencent’s share price has already entered into bearish trend, down over 30% from its historical high, seen in March this year. Worse-than-expected earnings results will not help to restore investors’ confidence. As it is the single largest component in the benchmark Hang Seng Index with a weightage of around 10%, weakness in its performance have had significant impact to the index in both price and sentiment level.

Hong Kong Monetary Authority has stepped out to intervene its currency market to defend the HKD, as the currency has fallen to the lower bound of the currency peg with the USD. This suggests depreciation pressure on the local currency and net capital outflow from HK dollar denominated assets. Therefore, it is usually interpreted as a warning signal for its stock market. 

Technically, the Hang Seng Index has also broken down below a key support level at 27,600 area. This opens the floor for further downside towards the next key Fibonacci level at 26,000 points.

Bearish sentiment spread to European and US markets last night, with Nasdaq tumbling over 1.2%. Other factors that triggered broad sell-off in risk assets include Turkey currency rout and concerns over emerging market currency weakness. In Asia, Indonesia central bank has raised benchmark interest rate and reserve requirement ratio in an attempt to defend its currency from falling.

US dollar and the VIX index gained last night, as fear came back to the market again and there is increasing demand for safety – US dollar, Japanese yen and treasuries. Traditional safe-havens such as gold and silver, however, were abandoned by investors because their opportunity cost is rising alongside with the interest rate. In fact, strong US dollar showed negative influence over metal prices recently. Gold price broke down a key support level of US$ 1,200 and may continue its bearish trajectory towards the next key support at US $1,120 area.  

Tencent

By Margaret Yang in Singapore

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