The US Department of Defense (DoD) announced on Monday that Tencent Holdings, CATL, and SenseTime were added to the Section 1260H list, a list of companies that collaborate with China’s military.
Tencent’s inclusion in the list came as a surprise to the market, denting its ADRs and Hong Kong shares, said Morningstar.
However, considering that Tencent’s business model revolves around social networking and online game, and that it is not a state-owned company and is not involved in any major military projects, there is a good chance that the company will be excluded from the list later, similar to what happened to Xiaomi when it was removed from the list in 2021, just 4 months after its inclusion, it said.
Morningstar estimated Tencent’s earnings exposure to the US to be in the high single-digit percentage range, which is mainly attributable to game revenue, and believed that Tencent’s US game business is highly unlikely to be affected in the near term.