NetEase Under Review Amid New Chinese Gaming Regulations

We are placing NetEase under review following the Chinese government’s release of new draft regulations affecting the gaming sector. Should these rules be put into effect, they could adversely affect the revenue of gaming companies, with NetEase potentially facing considerable challenges. Latest developments have triggered a sharp decline in the stock values of Tencent and NetEase, with shares dropping more than 10% by midday. We believe this market reaction is justified due to the expansive scope of the new draft rules. While these developments could have far-reaching consequences, we are maintaining our current fair value estimates for Tencent and CMGE, as they appear to face a less severe impact from the draft rules. Our position is subject to change as we await further information from gaming companies as to how the new regulations will affect their sales.