At the beginning of the month, reports revealed that global money manager BlackRock [BLK] and Tencent Holdings [TCEHY] had been holding discussions about creating a partnership. These talks have surrounded the best ways in which Blackrock’s portfolio-modelling and investment expertise could best translate in China on a broad scale, according to Bloomberg and the Wall Street Journal.
Tencent would be able to provide a high-profile platform to launch BlackRock into the Chinese market and while gaining valuable backing from the financial institution, but while the news is certainly exciting talks are in the early stages. Currently, there are no guarantees that a partnership has been officially agreed upon and there are potential risks posed by the ongoing trade war and changing regulations.
What will they both bring to the table?
So far, the focus of discussions has been around the tools BlackRock has at its disposal, sources close to the situation told the Wall Street Journal. Tencent has access to 150 million people across China looking into mutual funds and investment products and rate of success in the expansion could be drastically increased following partnership.
No matter how stagnant the economy becomes, people will continue to look for advice when managing their finances. Allegedly, both companies have the idea of creating a software platform akin to Aladdin, which is a suite offering risk and portfolio management and trade.
Introducing this platform to the 1.1 billion people using WeChat every month could mean BlackRock could rely on one sole vendor acting as the front man for its products as opposed to another bank or financial institution. For Tencent, any tie-up could provide “the cachet of being able to promote a leading U.S. financial institution,” Bloomberg notes.
Number of people using WeChat every month
More than a gaming platform?
Tencent is the Shenzhen-based owner of highly popular social media platform WeChat (or Weixin) as well as being the largest games publisher in the world by revenue. However, it also has a considerable fintech and business services offering.
The company’s LiCaiTong wealth management platform has $112bn in aggregated assets and manages millions of dollars through its WeChat pay system. Tencent’s fintech and business services account for 26% of revenue in Q2, Bloomberg notes.
But Tencent stock has had a rough ride in 2019. After what looked like a recovery from a poor 2018 – reaching a YTD peak of $50.40 in April – share price began to slide throughout the months to October.
After a brief rally in April, last week the share price dipped to a low of $40.56 and by close on 16 October had rallied slightly climbing by 3.2% to trade at $41.88.
Tencent has previously stated that it expects macro headwinds to affect it throughout the entirety of 2019, but the opinion of some is that this and ongoing trade wars may be masking the company’s global potential, something that a partnership with BlackRock could help reinforce.
|PE ratio (TTM)||31.03|
|Quarterly Revenue Growth (YoY)||20.60%|
Tecent share price vitals, Yahoo Finance, 18 October 2019
What is the outlook for Tencent?
China currently has a cap on foreign asset managers’ holdings in mutual funds that has prevented any western monopolisation of their market. However, as of 2020 this is set to change, as last week the Chinese authorities announced its timeframe for removing limits to stakes in futures, mutual funds and securities companies.
BlackRock, which has $6.84trn assets under management globally is eyeing up this important change in the market to launch their strategy, whether or not that involves a partnership with Tencent.
To further complicate matters for Tencent, Vanguard Group has formed a joint venture earlier this year with Ant Financial Services Group - an affiliate of one of the biggest companies in China, the Alibaba Group, the Wall Street Journal states. Although neither company has yet to announce their plans for the commercial partnership, BlackRock and Tencent would already face stiff competition if they go forward with their own plans.
Valuation of BlackRock's assets under management
The consensus is on Tencent’s side though, as 40 of 48 analysts rate the stock as Buy, and five as outperform, while three are Hold, according to CNN.
Among 45 analysts offering a 12-month price forecast the median price of $53.04 would represent a 26.6% increase on current share price, while a high of $61.32 would mean a 46.4% increase.