Baffled investors fear nothing is off limits in China crackdown

SHANGHAI/SINGAPORE, Aug. 3 (Reuters) – Baffled investors in China’s tech sector again scrambled away from regulators on Tuesday, fearing a state media story that compared internet gaming to opium could set a new front in the barrage of critical glances signal big things.

The article was later amended to remove the historically charged opium reference, but along with the opening of an investigation into car chip distributors, it rocked markets that were still shocked by a panic sell-off a week ago.

Tencent (0700.HK), the social-media-to-gaming giant, fell 6% and was cut short as Asia’s most valuable company, while semiconductor stocks fell as the moves failed to fulfill the authorities’ day-old promise of a calmer hand.

“This drip feed of ‘potential’ regulation is creating 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 nothing concrete in the rules yet like a floor.”

Shares in gaming company NetEase (9999.HK) fell nearly 8% on Tuesday, while losses were even greater for game developer XD Inc (2400.HK) which fell 8% and mobile gaming company GMGE Technology Group Ltd (0302.HK) which fell almost 14%.

China’s CSI All Shares Semiconductor & Semiconductor Equipment Index fell more than 6%.

China’s State Administration for Market Regulation said it had launched an investigation into car chip distributors because it suspected prices were being manipulated. read more

The state media article that kicked off tech sales on Tuesday, published in the Economic Information Daily, cited a Tencent video game and called for more curbing of children’s addiction to games it initially described as “spiritual opium.” read more

The outlet is affiliated with Xinhua, China’s largest state news agency. The article soon disappeared from the newspaper’s website and WeChat — and Tencent’s stock rebounded a bit — and reappeared later minus the “spiritual opium” line.

It was not clear why it was changed, although opium addiction is a sensitive topic in China, where it was rife in the 1800s, leading to two opium wars and the “forever” ceding of the island of Hong Kong to Britain. . Traders viewed the drop as a softening of the attack, even if it was just a breeze.

“Most will be inclined to believe that there is no smoke without fire,” said Dave Wang, portfolio manager at Nuvest Capital in Singapore, which owns Tencent shares, of the vanished story.

“The gaming sector is expected to be further tightened,” he added. “There are many on the sidelines waiting for clarity on when this crackdown will finally end before more meaningful investments are made in China.”

NOTHING OUTSIDE LIMITS

Investors believe that a major shift is underway in China as the government aggressively pursues reforms to ease pressure on the cost of living at the expense of business. read more

Chaotic sales last week, sparked 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 might lie.

China’s securities regulator had tried to assuage fears with a promise of a more steady rollout of reforms in a meeting with foreign brokers last week, but Tuesday’s news sparked new concerns that nowhere is safe.

“(The stock’s price movements) showed how jumpy investors are these days,” said Ether Yin, a partner at Beijing-based consulting firm Trivium.

“They don’t believe anything is prohibited and will react, sometimes exaggeratedly, to anything in the state media that fits the tech crackdown story.”

The nerves coincided with a slowdown in China’s economy – factory activity grew at the slowest pace since February 2020 last month – contributing to a broad sense of caution in the markets, even among investors who say the crackdown is manageable .

“We see little global spillover risk from China’s claim of greater control over certain industries, even though it may lead to market volatility,” BlackRock Investment Institute analysts said in a note.

“We remain tactically neutral on Chinese equities and see further easing in monetary and fiscal policies 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

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