Hong Kong's Hang Seng index rallies by more than a tenth

Do not be fooled by the name: Tencent is neither a rapper nor a penny stock.

Hong Kong's Hang Seng index - comprising Hong Kong blue-chips as well as leading China "red" chips - has rallied by over a tenth this month, and returned one-quarter since January. The Chinese mobile gaming and messaging platform Tencent is enjoying the ride. The company, which owns the messaging app WeChat, began the year with a market capitalisation of $120bn. On Monday it was briefly valued at over $200bn, larger than HSBC.

No surprise, then, that some people are taking profits. After market on Monday, the company revealed that its chairman and founder, Ma "Pony" Huateng, sold part of his holding last week, raising more than $400m. On Tuesday, sellers pushed the stock down as much as 8 per cent on big volumes as they followed him out. Mr Ma may not be the best lead to follow; last December he sold part of his holding at a price around one-fifth below current levels.

But even for an investor who does not own nearly $20bn in Tencent stock, recent performance may seem overdone. The shares trade at 38 times forecast earnings (against 28 at the start of the year). But the company has plenty of potential. In the fourth quarter of last year, monthly active users on the messaging apps WeChat and Weixin reached 500m, 40 per cent higher than the previous year. More importantly, Tencent is finding new ways to make money from its users. Around 100m of them have linked their credit cards to Tencent's payment services through Mobile QQ wallet and Weixin payment. Tie-ups with content providers such as the NBA and HBO offer opportunities for targeted advertising; revenue from this service, though still only one-eighth of the total, grew 75 per cent in the fourth quarter.

Tencent is also trying to get users to pay for content. But in a country where content has often been free, this will not be easy. The enthusiasts behind the recent share price jump are betting that the shift to paid content is a "when" rather than an "if".

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