Chinese education stocks crash on government regulations
On Friday, China released rules banning for-profit tutoring in core school subjects — impacting a $120b industry.
- In 3 days, TAL Education (NYSE:TAL) fell more than 70% along with other Chinese education stocks. One thing is clear — no sector is safe.
What’s the big deal? In just a few days, the risk of holding Chinese stocks went from 50-100. What started with China raising cybersecurity concerns and cracking down on the power held by Chinese tech companies, extended into other sectors:
- Tencent Entertainment Music (NYSE:TME) fell 11% after China ordered it to end exclusive music licensing deals.
- The entire Chinese internet industry is declining — with KraneShares CSI China Internet ETF (NYSE:KWEB) down 15% in the past week.
When Amazon loses a $10b government contract, they can sue the government. But companies can do little against Chinese regulations. “What are we supposed to do? We can’t fight the Communist party” — says one edtech exec (via FT).
According to Dickie Wong of Kingston Securities:
- “We can’t say what sector will be the next that the Chinese government wants more control over”.
- “This will create fear and selling pressure in the near term”.
Beyond China: The move could be good for US stocks and — the less to do with China, the better:
- As global investors see more risk in Chinese markets, money could flow toward the US markets.
- Amazon, Facebook and Google, which are already banned from operating in China, could be the least affected of the big tech stocks.
But those with a bigger exposure (i.e. Apple and Tesla) — which generate a significant portion of their sales from China — face more impact.
The sentiment in Chinese stocks can change quickly and one day, there will be a bottom — presenting a chance for discount purchases… Just not today.