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Today's big stories

China’s Tencent reported better-than-expected earnings, but sales grew at their slowest pace in two years
Our analyst digs into another tactical asset allocation strategy that’s delivered mean returns using momentum and diversification – Read Now
US retail giants Lowe’s and Target also scored better-than-expected results, and Lowe’s stock shot up

Tencenter Stage

What’s Going On Here?

Tense times for Tencent: the Chinese internet giant stepped into the spotlight on Wednesday and delivered fluent earnings – but it stumbled when it came to sales growth.

What Does This Mean?

Tencent’s revenue was up 20% last quarter compared to the same time last year – not bad, but still its smallest rise since 2019, with the Chinese government’s expanding tech crackdown likely hitting Tencent’s mobile gaming empire.

A $3 billion gain on its investment portfolio meant profit nevertheless grew by a better-than-expected 29%. Come its next set of quarterly results, however, Tencent might be announcing investment losses. The company is a big backer of Chinese for-profit education startups like Yuanfudao and VIPKid – and a radical overhaul of the industry last month banned such firms from, er, making a profit. Not only is that likely to undercut their valuations, but Tencent may now be stuck with these unattractive unlisted shares: with China’s new rules also banning such companies from “going public”, its only way out is to find some other ~~sucker~~ private investor to sell them to.

Why Should I Care?

For markets: Tencent none the richer.
Tencent’s own share price is down more than 40% from the all-time highs it hit in February. While the company isn’t being specifically targeted, its outsized influence in the modern Chinese economy has left it vulnerable to a government crackdown that’s rapidly expanded to cover data security and online content. Worried investors around the world have been selling the company’s stock as a result.

The bigger picture: There’s a new king in town.
With tens of billions of dollars knocked off Tencent’s market capitalization, it’s no longer Asia’s most valuable company: that crown now belongs to TSMC (tweet this). The world’s largest contract manufacturer of microchips has been reporting bumper profit recently thanks to the global chip shortage, and investors have sent the Apple supplier’s stock up accordingly.

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2. Analyst Take

Tactical Asset Allocation: Diversifying Your Portfolio

“Tactical asset allocation” actively adjusts a portfolio to target market trends, aiming to maximize returns while minimizing risks.

But there are thousands of tactical asset allocation strategies out there: some good, some not so good.

Enter Composite Dual Momentum, another of the best-performing such strategies over the past 50 years.

It’s generated an impressive average annual return of 12%, thanks to its focus on simultaneously keeping a portfolio diversified and avoiding large investment drawdowns.

So that’s today’s Insight: the Composite Dual Momentum strategy explained, and how you can easily implement it using exchange-traded funds.

Read or listen to the Insight here

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