Chinese Tech Titans Are Losing Their Global Backers

China’s biggest technology companies, which had generated rich returns for global investors in years past, are losing their appeal among many of their early backers. The dimming outlook for the country’s tech sector has prompted investors that they should lock in their profits while they still can.

Hong Kong-listed gaming and social media giant Tencent is a case in point. Naspers, the South African internet group which first invested in the company more than 20 years ago, announced on Thursday that it had sold 1.1 million Tencent shares, which reduced its ownership stake to below 28%. The move not only shows that it’s clearly abandoned its previous pledge not to offload its stake, but it also revealed that more disposals are on the way. Naspers’s Dutch-based international investment arm—called Prosus—signaled its intention by moving an additional 192 million shares worth roughly $7.6 billion into the Hong Kong Central Clearing and Settlement System.

Although the South African group says it’s selling Tencent’s shares to fund the company’s own stock buyback program, analysts point to another consideration that may have also driven SoftBank to recently cut its stake in e-commerce giant Alibaba, and Berkshire Hathaway to reduce its ownership of electric vehicle maker BYD.

“The tech pullback by global investment giants reflects an important cyclical change in China’s economy,” says Brock Silvers, chief investment officer at Hong Kong-based Kaiyuan Capital. “The outsized growth rates that created vast tech fortunes are unlikely to return.”

In August, Tencent reported the company’s first revenue decline since 2014. Whether the Shenzhen-based giant can get back to a growth trajectory seems highly uncertain under the current conditions. Its mainstay gaming business continues to face regulatory pressure at home, and its once fast-growing ad unit keeps struggling with an economy weakened by repeated lockdowns and a slumping property sector.

It joins e-commerce behemoth Alibaba, whose Southeast Asian arm Lazada is now preparing to venture into Europe, as it looks for opportunities abroad. On Thursday, the company raised its ownership in Assassin’s Creed maker Ubisoft to 11% in a deal that values ​​the latter at $10 billion. That investment comes just a week after purchasing a 16.25% stake in Elden Ring developer FromSoftware for an undisclosed amount.

But Tencent and Alibaba are yet to convince investors that they can make a comeback, and shares of each firm have lost more than one-third of their value over the past 12 months. And as the negative sentiment persists, BYD is also facing questions about whether its growth momentum can be sustained.

Headed by billionaire Wang Chuanfu, the Shenzhen-based company reported first-half results that came in at the top end of its own guidance, but that didn’t stop legendary investor Warren Buffett from another reduction in Berkshire Hathaway’s stake in the company.

Kenny Ng, a Hong Kong-based strategist at Everbright Securities, says part of the reason could be that, with a current price-to-earnings ratio of over 100 times, the company’s valuation looks high.

Moreover, preferential government policies, such as tax exemptions for EV purchases, may have less of an impact in the future as consumer enthusiasm gradually wears off.

“The industry may not necessarily grow as it did in the first half,” Ng says. “There will be continued government support, but it would be difficult to maintain the momentum we saw in the first six months, at least in the short term.”

Against such a backdrop, big-name investors will be aiming to realize their gains, analysts say.

“When faced with relatively big uncertainties, the institutional investors, especially those who invested during early stages, will move to secure profits,” Ng says, adding that Naspers, SoftBank and Berkshire Hathaway have all made handsome returns from China’s tech scene.