Tencent Holdings saw its shares drop sharply on Monday following the US Department of Defense's decision to designate the Chinese tech giant as a military company operating in America.
The Shenzhen-based company's US depositary receipts fell as much as 7.3% to $49.31, marking the steepest intraday decline in approximately three months. Prosus, which holds roughly 25% of Tencent's shares, also experienced a 7.2% decline in US trading.
The designation was announced in a Federal Register filing that also named other Chinese firms, including Contemporary Amperex Technology and Autel Robotics. Companies placed on this military list face serious consequences, including potential delisting from US exchanges and removal from global benchmark indexes.
This classification stems from a 2020 executive order signed by then-President Donald Trump, which prohibited American investment in Chinese companies deemed to be owned or controlled by China's military. The measure was part of broader US efforts to address what it characterized as unfair business practices by Beijing.
The news comes as Tencent, one of China's most valuable tech companies, has been navigating domestic economic challenges. Despite these headwinds, the company performed relatively well in 2023, with its Hong Kong-listed shares rising over 42%, backed by strong gaming revenues and growth in its financial technology division.
Previous cases suggest companies can challenge their designation. Smartphone maker Xiaomi successfully negotiated its removal from the list in 2021, while Advanced Micro-Fabrication Equipment achieved similar results last year. The Defense Department has indicated that listed companies may request reconsideration of their status.
Tencent has not yet responded to requests for comment regarding the designation.