Finimize - 😳 China comes crawling back

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Today's big stories

Tencent reported a weaker-than-expected batch of quarterly earnings
There are two indicators suggesting we’re about to slip into a bear market, and potentially even a recession – Read Now
UK inflation hit a 40-year high in April

Game Over

What’s Going On Here?

Chinese gaming giant Tencent reported its slowest quarterly revenue growth on record on Wednesday.

What Does This Mean?

Tencent is a bit of an outlier among Chinese tech companies, having escaped the government’s otherwise unforgiving attack on the sector. But it was still burned by the fallout: the company’s online advertising revenue fell 18% last quarter from the same time last year, as companies that were directly affected – like online tutors and insurers – wound back their ad spending. TikTok-owner ByteDance didn’t help either, poaching plenty of its would-be advertisers for itself. To add insult to injury, growth in Tencent’s gaming division practically stalled, as the company waits for regulators to approve new game releases. That led the company’s overall revenue to grow by just 0.1% – the smallest uptick since it listed on the stock market 18 years ago.

Why Should I Care?

For markets: The tortoise and the hare.
Tencent is still China’s most valuable company, but its market value has more than halved from around $930 billion in February 2021 to around $450 billion today. That’s a pretty pronounced turnaround, given that for years it was one of the fastest-growing companies in the world. Things are so bad, in fact, that it’s now growing slower than even utilities companies: the top ten firms in this notoriously lethargic sector grew 8.6% a quarter on average last year.

The bigger picture: Look who’s come crawling back.
The Chinese government said this week that it would now be going out of its way to support its tech companies, which helped an index tracking some of the country’s biggest to rally this week. As for why it’s chosen now – the precise moment its economy has started to flag – to cozy up to the biggest driver of its economic growth in the past decade, it’s a mystery.

You might also like: How to work out if Tencent’s stock is worth buying.

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Analyst Take

First A Bear Market, Next A Recession

Reda Farran, Analyst

If we look at all the recessions since World War II, most of them had four things in common.

A rate-hiking cycle by the Fed. Check. An inverted yield curve. Check. Geopolitical tensions. Check. And… a bear market.

That’s the last one left, and we’re not far off: the US stock market is on a six-week losing streak, and two indicators suggest it’s going to drop even further.

And judging by the historical relationship between bear markets and economic slowdowns, there could be a recession to come too.

That’s today’s Insight: what you can expect if we fall into a recession, and a really top-notch picture of a bear waving, apparently.

Read or listen to the Insight here

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