“This merger is powerful,” said Edith Yeung, a general partner at Silicon Valley venture capital firm Race Capital and author of the “China Internet Report.”
Investors responded swiftly to the news. Shares of Tencent shot up 3.9% in Hong Kong on Tuesday, while Sogou jumped 2.5% in premarket trading in New York. The news helped other tech stocks shine, too. Hong Kong’s Hang Seng Tech Index rose 1.9% Tuesday.
The Tencent announcement “is some very welcome news in the China tech sector in the context of the recent clampdown, and has lifted sentiment across the whole space today,” said Jeffrey Halley, senior market analyst for Asia Pacific at OANDA.
A rocky road
Tencent shares slid Monday on that news. The company has lost almost $261 billion in market value since its most recent peak in January.
In a statement Saturday, the SAMR cited concerns that the video game merger would give Tencent too much control over the marketplace. Both players are publicly traded in New York, and have a combined market capitalization of $5.1 billion.
Over the weekend, the Cyberspace Administration of China — the country’s powerful internet watchdog — also proposed that any company with data on more than one million Chinese users must seek the agency’s approval before listing its shares overseas. It proposed that companies must submit IPO materials to the agency for review ahead of listing.
Yeung noted the new measures, saying that it was too early to tell how Tencent’s latest win could affect sentiment in the sector more broadly.
“[It’s] very tough to say,” she said. “I would take the wait-and-see attitude.”
Meanwhile, Halley predicted that Chinese tech stocks could continue to face pressure in the near term.
“I believe it is but a temporary reprieve,” he said of Tencent’s approval. “I believe that [Chinese] political risk will continue to act as a discounting price factor on mainland technology stocks going forward.”
— CNN’s Beijing bureau and Laura He contributed to this report.