By Barbara Kollmeyer
“Spiritual opium” accusations sent shares of the China multinational technology group Tencent and other companies in the gaming industry tumbling on Tuesday amid fears that a new regulatory chapter was about to begin.
Tencent’s stock /zigman2/quotes/204605823/delayed HK:700 -1.28% tumbled 6% while NetEase /zigman2/quotes/218787563/delayed HK:9999 +0.13% /zigman2/quotes/201683625/composite NTES +0.98% and XD /zigman2/quotes/203507407/delayed HK:2400 -3.26% each fell around 8% in Hong Kong trade. In early U.S. trading, shares of Tencent’s U.S.-listed music arm, Tencent Music Entertainment /zigman2/quotes/205527956/composite TME +1.66% , and the rideshare group Didi Global /zigman2/quotes/227703899/composite DIDI +0.70% , both of which have been the subjects of Beijing regulatory moves, were down more than 5% each.
The gaming-stock losses in Asia came after an article in the Economic Information Daily, which has links to state-controlled news agency Xinhua, said the gaming industry, especially Tencent, was harming the nation’s teens, according to reports .
While the South China Morning Post subsequently reported the story had been taken down, investors were rattled by fears that yet another regulatory crackdown could be coming. The South China Morning Post said the Economic Information Daily article didn’t appear to represent Beijing’s position on that industry, noting positive comments from an official recently.
China is the world’s biggest videogame and esports market, according to PwC China , with combined revenue reaching $31.5 billion last year. The revenue share of app-based social and casual games in China is forecast to reach 71.8% of overall videogame revenue by 2025, and a chunk of Tencent’s revenue stems from gaming.
A wave of separate crackdowns on technology companies, including the Tencent music unit and Didi as well as education companies, have been impacting China stocks as well as U.S.-listed shares of Chinese companies in recent weeks.
“After the last few weeks, even oblique warnings from authorities are ignored at your peril, and it seems that regulatory risk is alive and well in China still,” said Jeffrey Halley, senior market analyst for the Asia Pacific region with OANDA, in a note to clients.
Tencent appeared to be responding to the potential threat as it announced online time limits for minors playing its games, and said it would ban those under 12 from spending any money in-game, according to a statement on a WeChat account reported by Bloomberg .
While it remained unclear if the gaming industry is indeed under threat in China, some noted the fact that addiction, or habituation, to online games was reportedly discussed at China’s National People’s Congress in March , with President Xi Jinping himself taking part in related discussions.
Xi reportedly said that gaming addictions, as well as “other dirty and messy things online,” could negatively influence young and psychologically immature Chinese people.
China’s regulatory issues are local, not global, JPMorgan’s chief global markets strategist, Marko Kolanovic, told clients in a note on Monday as his team backed an overweight rating on emerging markets.
“Given the substantial correction in affected market segments, this risk appears to already be priced in and could ease from here, and it poses little threat to our overall risk-on stance in our view,” said Kolanovic and team, adding that Beijing will “stop short of changes that cause an economic growth shock.”