On Tuesday (4th July), the stock price of Tencent Holdings Ltd (700.HK) adjusted by 4.13 percent and Galaxy Entertainment Group Ltd (027.HK) by 3.56 percent. The total adjustment over the past few days was 6.65 percent for Tencent and 9.14 percent for Galaxy Entertainment Group.

Both businesses have been facing some bad news recently—Tencent was under fire for King of Glory, a game which Chinese teenagers and children have grown very addicted to.

Chinese authorities have dubbed the game King of Glory as “electronic opium”.

Chinese authorities have dubbed the game King of Glory “electronic opium”.

Galaxy Entertainment’s bad news was the Macau government’s announcement that Macau’s June gaming revenues had fallen below market expectations. (Note: Macau’s June gross gaming revenue was up 25.9 percent, which was lower than the expected 26.8 percent rise.)

Having said that, I think the real reason behind the adjustment was that the stock prices of these two companies had previously risen too high. Since December last year, Tencent’s stock price had surged from HK$180 to HK$288 at its highest point.

As for Galaxy Entertainment, its stock price, which was only around HK$22 a year ago, has increased by about 100 percent as compared to now. Therefore, I think that an adjustment is only fair.

Other stocks adjusted too

Those who engage in short-term speculation tend to sell their stocks upon seeing an adjustment, and by doing so, they only earn peanuts.

In fact, not just Tencent and Galaxy Entertainment Group, but almost all the stocks across the market had adjusted on Tuesday. Among the Hang Seng Index constituents, only five stocks rose against the falling market.

So why is it that the remaining 40 plus stocks fell too despite not facing any bad news in particular? I think it is only a matter of common sense—stocks always fall back down after they have gone on a rising spree.

If you are wary of investing in companies that are currently facing bad news, you can instead turn your attention to the companies whose stock prices declined despite having no bad news and seek opportunities in them.

Apart from Tencent and Galaxy Entertainment Group, I have also compared the magnitude of adjustment of eight strong stocks.

MTR Corporation (066.HK) adjusted the most, by 9.1 percent, followed by Link REIT (823.HK) which adjusted by 7.5 percent.

BOC Hong Kong (Holdings) Ltd (2388.HK) also adjusted by 6.3 percent, HKEx (388.HK) by 6.2 percent, AIA Group Ltd (1299.HK) by 6.2 percent, CLP Holdings Ltd (002.HK) by 5 percent, Hang Seng Bank Ltd (011.HK) by 3.1 percent, and HSBC Holdings PLC (005.HK) by 1.6 percent.

The eight above mentioned stocks are all strong stocks, and a significant adjustment translates into discounted prices.

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