The bar is set very high for Tencent's quarterly numbers due this Wednesday as shares have enjoyed their strongest monthly run-up to results in 3 years. With valuations rich on a relative basis and other beaten-down Chinese shares starting to move, risks of an unwind are high.
** Back in 2009 at the end of a similar strong run-up ahead of quarterly results Tencent was trading at less than a third of its current value.
** Its market-cap has now swelled to $85 billion (nearly twice that of Baidu ) to become one of the largest private enterprises in China.
** The stock is the year's best performing Hang Seng index constituent, up over 45% compared with the HSI's ~2% dip so far in 2013. link.reuters.com/mut32v
** Valuations appear rich. According to StarMine Tencent ranks among the bottom 2 percent of regional internet stocks. Relative to its own history, the stock now trades at a mild premium to its historical 10-year average.
** Street recommendations remained skewed towards the optimists with 22 buys, 9 holds and just the 3 sells.
** Its mobile and online gaming businesses are cited as top reasons to remain invested as is Tencent's low correlation with China's economic slowdown.
** If the move higher in Chinese cyclicals sustain, the crowded Tencent trade could come undone in a hurry.
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