Tencent Music Entertainment Group (NYSE: TME), saw a heavy reversal on its month-long bearish tumble, bagging in a 17% climb. Where growth was a remarkable 14.74% in yesterday’s session, the premarket saw the TME rocket take off to over 24.6%. The China-based music company has seen staggering shifts throughout the month, which raises caution amongst traders pertaining to the stock. Furthermore, broader factors may potentially be at play that is yet to influence the future trajectory of TME.
Downward TME Movement due to China Fine
A major development that helps explain the tumble last month is the high possibility of a hefty fine by China. This is especially the case in regards to the 29.4% fall seen last year. Due to non-compliance of payment methods, which potentially act as a model for money laundering, the company faces severe action. Although there is no clear expectation of a precise figure, experts suggest this will well into the billions of Yuan. These failures to comply pertained specifically to the ‘know your customers’ and ‘know your business’ standards. This could deal a significant blow to TME prospects in the short term.
TME-Specific and Broader Prospects
The TME stock was downgraded by Goldman Sachs from neutral to sell, less than a month ago. The move triggered a selling spree in the market driving down the price considerably. Moreover, the stock was in 18 hedge funds at the end of 2021, down from 24 in the previous year. This brings into question why a growth surge is underway at present.
The answer could be linked to potentially broader macroeconomic factors at play. Given the Russian invasion of Ukraine, and ensuing sanctions, traders are extremely cautious prior to their call executions. TME, a Chinese music company, serving the Chinese market, is an example of a safe investment, given current circumstances. The stock stands unaffected by the global supply-chain and logistical disruptions coming from Eastern Europe, and its wider impacts. Moreover, recent reports of Saudi Arabia considering Yuan payments for oil, as opposed to the dollar further factors in. The move, points towards a new phase for the Chinese economy, as a competitor to the petrodollar. This gives new gains to Chinese companies such as TME.
Conclusion
TME has gone through a persistent bearish trend throughout the prior month. This is primarily spurred by a possible fine to the company by China due to non-compliance of regulation. The amount is likely to exceed into the billions of Yuan. Despite this, an unlikely growth spurt is underway, which could be linked to broader macroeconomic factors. The geopolitical crisis in Eastern Europe, as well as the Yuan possibly competing against the petrodollar, each could be at play.
