Wrapup 1: Baffled investors fear nothing's off limits in China regulatory crackdown
03/08/2021 11:52
* Tencent drops after state-media attack on online gaming
* Semiconductor firms sold on regulator investigation
* Investors jumpy about next target
SHANGHAI/SINGAPORE, Aug 3 (Reuters) - Bewildered investors
in China's tech sector scrambled once again from regulators on
Tuesday, fearing that a state media story that likened internet
gaming to opium signals a new front in the barrage of scrutiny
that is being directed toward big business.
The article was later altered to remove the historically
loaded opium reference, but, together with the opening of a
probe into automotive chip distributors, it roiled markets still
smarting from a panic sell-down a week ago.
Tencent 0700.HK , the social-media-to-gaming behemoth, fell
6% and was briefly knocked from its mantle as Asia's most
valuable company, while semiconductor stocks slid as the moves
seemed to unwind authorities' days-old promise of a calmer hand.
"This drip feed of 'potential' regulations constitutes a
tsunami of uncertainties," said Richard Kramer, managing partner
of Arete Research.
"People want to know when it's time to buy, but there's not
yet something concrete in the rules to find as a floor."
Shares in gaming firm NetEase 9999.HK fell nearly 8% on
Tuesday while losses were even bigger for game developer XD Inc
2400.HK which fell 8% and mobile gaming company GMGE
Technology Group Ltd 0302.HK which dropped almost 14%.
China's CSI All Shares Semiconductor & Semiconductor
Equipment Index CSIH30184 tumbled over 6%. .HK .SS
China's State Administration for Market Regulation said it
had launched an investigation into auto chip distributors
because it suspected price gouging. urn:newsml:reuters.com:*:nL1N2PA06O
The state-media article that sparked Tuesday's tech selling,
published in the Economic Information Daily, mentioned a Tencent
video game and called for more curbs to address children's'
addiction to games it initially described as "spiritual opium".
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The outlet is affiliated with China's biggest state run news
agency, Xinhua. The article soon disappeared from the paper's
website and WeChat - and Tencent's stock rebounded a little -
then it later re-appeared minus the "spiritual opium" line.
It was not clear why it was altered, though opium addiction
is a sensitive subject in China where it was widespread in the
nineteenth century, sparking two Opium Wars and the ceding of
Hong Kong island "in perpetuity" to Britain. Traders took the
deletion as softening the attack - even if that was only cold
comfort.
"Most will be inclined to believe there's no smoke without
fire," said Dave Wang, a portfolio manager at Nuvest Capital in
Singapore, which owns Tencent stock, of the vanished story.
"There's expectation of a further tightening on the gaming
sector," he added. "There are plenty on the sidelines waiting
for clarity on when this crackdown will finally come to a close
before any more meaningful investments into China."
NOTHING OFF LIMITS
Investors believe a major shift is under way in China as the
government aggressively pursues reform aimed at cutting
cost-of-living pressures at the expense of businesses.
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Chaotic selling last week, triggered by leaked details of an
education-sector crackdown, capped the worst month for Chinese
stocks in nearly three years as investors worried about where
the next target may lie.
China's securities regulator, in a meeting with foreign
brokerages last week, had sought to soothe fears with a promise
of a steadier reform rollout, yet Tuesday's news sparked fresh
concern that nowhere is safe.
"(The share price moves) showed how investors are jumpy
these days," said Ether Yin, partner at Beijing-based
consultancy Trivium.
"They don't believe anything is off limit and will react,
sometimes over-react, to anything on state media that fit the
tech crackdown narrative."
The nerves have coincided with a slowdown in China's economy
- factory activity grew at its slowest pace since February 2020
last month - adding to a broad sense of caution in markets even
among investors who say the crackdowns are manageable.
"We see little global spillover risk from China's assertion
of greater control over certain industries, even as it
potentially leads to market volatility," analysts at BlackRock
Investment Institute said in a note.
"We remain tactically neutral on China stocks and see
further monetary and fiscal policy loosening as beneficial for
cyclical assets in China."
(Reporting by Tom Westbrook in Singapore and Andrew Galbraith,
Brenda Goh, Samuel Shen and Winni Zhou in Shanghai; Editing by
Nick Macfie)
((tom.westbrook@tr.com; +65 6973 8284;))