[Market Focus] Entertainment Stocks Hit Record Highs on China Expectations

Entertainment stocks are rising together on the news that HYBE has sold its stake in SM to Tencent. SM, HYBE, and YG Entertainment all hit new 52-week highs during intraday trading.

As of 9:20 a.m. on May 28, SM was trading at 137,500 won, up 7,600 won (5.85%) from the previous day. The stock climbed as high as 139,500 won during the session, setting a new 52-week high. HYBE was up 0.87%. It also reached a new 52-week high of 292,500 won during intraday trading. YG Entertainment, up 4.32%, also hit a new 52-week high of 85,300 won during the session. JYP Ent. was up 3.35%.

The previous day, HYBE announced that it would sell its entire holding of 2.21 million SM shares to Tencent Music Entertainment (TME) as of May 30. The sale price is approximately 243 billion won. HYBE, which became an SM shareholder by acquiring the stake of former SM executive producer Lee Sooman in February 2023, will end its equity relationship with SM through this sale.

With this acquisition, Tencent will become the third-largest shareholder of SM Entertainment, following Kakao and Kakao Entertainment. Choi Minha, a researcher at Samsung Securities, stated, "TME has been collaborating with domestic entertainment companies through music distribution and other partnerships. In addition, the Tencent Group is also a shareholder of Kakao Entertainment and YG Entertainment through its subsidiaries," adding, "By becoming a shareholder of SM through this stake acquisition, Tencent is expected to further strengthen mutual collaboration." Choi also noted, "Recently, expectations for the possible easing of the Hallyu ban have been rising, and if the Chinese market opens up, the direct benefits could be even greater. The SM stake held by HYBE had been considered an overhang risk, but this sale has removed that uncertainty, which is also positive."

Han Jiyeong, a researcher at Kiwoom Securities, commented, "The acquisition of HYBE's SM stake by Tencent, coupled with expectations for the lifting of the Hallyu ban, will create a favorable supply-demand environment for entertainment stocks overall."