US Defense Dept Designates Tencent and CATL as Military Companies - Impact on Korean Competitors

• The U.S. Department of Defense announced that it has added numerous Chinese companies including Tencent and CATL as companies that work with China's military.

• This is likely to negatively impact Tencent and CATL's prices in the next several weeks but positively impact on some of the major Korean rechargeable battery and gaming stocks.

• The higher probability scenario at this point is for Tencent and CATL to be officially included in the Chinese Military Industrial Complex list in the coming weeks.

The U.S. Department of Defense (DoD) announced that it has added numerous Chinese companies that work with China's military. Among these companies, two most prominent ones are Tencent (700 HK) and Contemporary Amperex Technology (CATL) (300750 CH) (CATL). This is a surprising move, given that both Tencent and CATL are giants in their own business areas including gaming and EV rechargeable batteries.

This move is likely to negatively impact the share prices of Tencent and CATL in the next several weeks. It could also have a positive impact on some of the major gaming and rechargeable battery related stocks in Korea as some institutional investors shift their capital allocation from Tencent and CATL to some of the beaten down Korean gaming/rechargeable battery names.