Tencent Slashes bets on shares that soared 684% in Edtech Frenzy

(Bloomberg) – Tencent Holdings Ltd. cut its stake in a Chinese education technology company that has staged a stunning rally over the past two weeks as investors question whether the sector’s surge is sustainable.

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The mobile gaming giant has reduced its stake in Koolearn Technology Holding Ltd. at 1.6% versus 9%, according to documents filed with the Hong Kong Stock Exchange. Koolearn jumped 684% in just nine trading sessions through June 16 as its foray into live e-commerce created social media buzz and market excitement after the sector was toppled during of Beijing’s sweeping tech crackdown last year.

“This is a very negative signal for those speculating on such a theme, especially since Tencent has sold so much of it,” said Steven Leung, executive director of Uob Kay Hian (Hong Kong) Ltd. It’s “too early” to call Koolearn’s transition to live streaming a viable option for other names in education, he added.

Tencent said it sold shares of Koolearn on June 15 and 16 at an average price of HK$9.62 and HK$9.68, respectively. The stock rose 7.9% to hit HK$18.32 at 9:59 a.m. Tuesday, regaining ground after falling 41% over two days.

Koolearn and its parent company New Oriental Education & Technology Group led a surge in edutech shares this month as traders bet the combination of live streaming, education and e-commerce could deliver a rally in the market. besieged area. Video clips of Koolearn tutors selling farm produce while teaching English through online platforms have gone viral, boosting the rally.

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Some analysts see Tencent’s cut as part of its shift to lower exposure in areas subject to Beijing’s regulatory crackdown.

“I think it’s quite reasonable for Tencent to optimize its investment portfolio and make a profit,” said Redmond Wong, market strategist at Saxo Capital Markets.

However, worrying signs are multiplying for the sector. On Monday, China’s state-run newspaper Farmer’s Daily called on live-streaming platforms to share more profits with farmers.

“I don’t know if their businesses are sustainable. Most of the rally could be driven by retail investors,” said Kenny Wen, head of investment research at KGI Asia. “For stocks that have surged lately, I’m very cautious.”

(Updates with Tuesday’s stock price movements, analyst commentary)

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Sallie R. Loera