Scottish Mortgage Investment Trust (LSE:SMT) PLC shares were under pressure on Monday after technology giant Tencent Holdings Ltd, the firm’s largest investment, found itself at the sharp end of a crackdown by Chinese regulators.
On Saturday, China’s market regulator, the State Administration Of Market Regulation (SAMR) that it was barring Tencent from acquiring exclusive music copyright agreements with labels and also slapped the firm with a fine of half a million Chinese yuan (£56,000) in relation to its acquisition of China Music Corporation in 2016, which the regulator said had given Tencent rights to over 80% of all music tracks and thus creating an unfair advantage over its rivals.
UPDATE: Scottish Mortgage and other Asia funds tumble as local regulatory crackdown widens
The SAMR also ruled that the company can no longer engage in exclusive music rights deals and must dissolve any existing agreements within 30 days.
The move means Tencent will be forced to give up exclusive music deals with a number of the world’s biggest labels such as Universal Music Group, Sony (NYSE:SNE) (NYSE:SNE) Music and Warner Music, which collectively own a plethora of song catalogues from artists including The Rolling Stones, Pink Floyd, Taylor Swift, Lady Gaga, Kanye West, Ed Sheeran and Madonna.
Tencent’s troubles form part of a wider crackdown on the tech sector by China’s regulators, who over the last year have launched investigations or issued fines to several high-profile companies including ride-hailing app DiDi Global Inc, messaging apps Weibo and QQ and video-sharing app Kuaishou.
READ: Tencent Music ordered to give up exclusive rights by Chinese regulators
Regulators also turned their guns on Chinese ecommerce giant Alibaba, which earlier this year was hit with a US$2.8bn fine after regulators said it was abusing its market position.
Tencent’s woes and the wider Chinese crackdown on tech are also causing a ripple effect across several China and emerging markets-focused investment firms, including Scottish Mortgage, which was down 0.9% at 1,333p in late morning deals in the wake of the weekend’s news.
As of March 31, 2021, Tencent was the trust’s largest holding accounting for 6.1% of its total assets, with other large Chinese tech firms such as Alibaba and TikTok owner Bytedance accounting for 4.3% and 1.8% respectively, leaving the company with large exposure to the ongoing turbulence in the sector.