Chinese gaming giant NetEase falls on Diablo Immortal delay

Yesterday, two things sent China’s second-largest gaming giant NetEase (NASDAQ:NTES) lower:

1. The delay of the highly anticipated China game launch of Diablo Immortal.
2. Winnie the Pooh.

What’s the big deal? China was expected to be the biggest market for the game — co-developed by NetEase and Activision Blizzard.

NetEase is pushing the release to “optimise the gaming experience,” but has been taking heat over its social media post — which drew reference to China-banned Winnie the Pooh.

The post read “Why hasn’t the bear stepped down” — and there’s a backstory of the Disney cartoon character…

• Pooh became a symbol of resistance towards the Chinese Communist Party — with social media drawing resemblance between China’s leader Xi Jinping and the cartoon.
• China began censoring Pooh and banned the Christopher Robin film starring Pooh in 2018.

The Hong Kong listing of NetEase — which also trades in the U.S. — fell 7% yesterday, while the U.S. exchanges were closed.

Gaming troubles: It’s been a challenging year for the Chinese gaming market. In 2021, China paused approvals on new game licenses and banned kids from playing games for more than three hours daily.

However, Chinese tech stocks outperformed in the past month — with signs of China easing its regulatory crackdown on the tech sector.

• The KraneShares CSI China Internet ETF (NYSE:KWEB) — which includes U.S. listed Chinese tech stocks — is up 16% in the past month.
• The tech-heavy Nasdaq Composite index is down 5% in the same period.

Per FT, China’s popular social platform Weibo has banned Diablo Immortal’s account. China resumed gaming approvals earlier this year — but NetEase is still having trouble getting on China’s good side.

Dive deeper: Investors see Chinese stocks in a new light.