Dow Jones – Shares of Chinese tech giant Tencent Holdings logged their first correction of 2017, falling more than 10% from their latest record high set last week after briefly surpassing Facebook in market value.
The development comes during this week’s global pullback in tech stocks, particularly those which have recorded big 2017 gains.
On Wednesday, the S&P 500’s tech sector suffered its third-worst trading day of the year while the Philadelphia Semiconductor Index slid 4.4%, its biggest decline of 2017.
Tencent, the company behind the popular messaging app WeChat, has been one of the biggest beneficiaries of the booming tech sector in Asia.
Its Hong Kong-listed shares have still more than doubled this year despite the 11% pullback from its recent high. Last month, it became the first Asian tech company to see its market capitalisation reach $500 billion.
The stock surge has helped fuel concerns that shares have become overheated. There has also been worry about whether Tencent’s steady string of strong earnings results will be sustainable.
Tencent shares were down 2% Friday afternoon, trading some 40 times projected earnings for the next 12 months, according to FactSet. That is about its highest forward multiple since 2014.
Sean Darby, chief global strategist at Jefferies in Hong Kong, is recommending investors rotate out many of the tech highfliers. They include the FANG stocks of the US—Facebook, Amazon.com, Netflix and Google parent Alphabet —as well as Asia’s so-called BAT stocks—Baidu, Alibaba. and Tencent.
“The market appears to have moved to excessively owning a few winners,” Darby said. “This is not the time to own all of them.” Should the declines continue, he added, the risk is that a “sell-off could be quite violent.”
Index moves have also helped fuel some of the Tencent selling. Following the close of trading Friday is the semi-annual rebalancing of indexes compiled by MSCI. There will also be changes, effective Monday, in Hong Kong’s Hang Seng Index, of which Tencent has become the biggest component this year with its stock surge.