NetEase loses a quarter of its value and Tencent stock skids on new China gaming rule proposal
By Barbara Kollmeyer
Shares of NetEase Inc. and Tencent Holdings Inc. fell sharply on Friday after Chinese authorities announced draft rules to crack down on spending and rewards in online gaming.
In a statement, China's National Press and Publication Administration, the top gaming regulator, proposed curbs on excessive spending on games by consumers, and bans on rewards from multiple logins and pop-up rules that would warn users against overspending on such games.
The draft rules also said content of any games should be prohibited from leaking "state secrets." The rules are open to public comment until January 22, 2024.
Shares of NetEase (NTES) (HK:9999) tumbled 24% and Tencent (HK:700) fell 12% in Hong Kong trading, which weighed on sentiment, triggering a 1.6% drop for Hong Kong Hang Seng Index HK:HSI.
Tencent is the parent of Tencent Music Entertainment Group (TME), and those U.S.-shares fell 6% in New York trading, while NetEase slid 21%.
Gaming represents about 70% of NetEase revenue and about 30% for Tencent, according to Gianmarco Bonacina, an analyst at Equita who follows Tencent investor Prosus (NL:PRX), which fell sharply in Amsterdam trade.
"It seems to us that the reaction is linked not only to the risk estimates for today's proposal but also to a derating due to an increase in future regulatory risk," Bonacina said.
The news comes as a blow for China shares, which are some of the worst performers in Asia and globally in 2023 - the Hang Seng is down 16%, and set for its fourth straight losing year.
China previously cracked down on the gaming industry, with concerns particularly centered around youth addiction and vision problems. In 2018, limits for new videogame releases were announced, alongside restrictions on playing times for young people.
In 2021, Tencent and other shares came under pressure after an official referred to online gaming as "spirtual opium" harming the minds of minors, suspending licensing for new games. The freeze on new games was lifted later in 2022 for Tencent and NetEase.
S&P Global Ratings noted earlier in May that regulatory restrictions in China on the internet sector had softened over the past year, but analysts cautioned that they expected "more regulatory actions well into the foreseeable future, particularly around data security and content moderation."
"But the scope for surprises should be significantly diminished and they shouldn't result in significant operational challenges, as occurred in 2021," said S&P.
-Barbara Kollmeyer
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
12-22-23 1018ET
Copyright (c) 2023 Dow Jones & Company, Inc.-
After Earnings, Is Berkshire Hathaway Stock a Buy, a Sell, or Fairly Valued?
-
For Bond Investors, Delayed Rate Cuts Demand a Different Playbook
-
What’s Happening In the Markets This Week
-
How the Tokyo Stock Exchange Is Pushing for Better Shareholder Returns
-
Magnificent 7 Stocks Earnings Updates: AI Remains the Focus
-
Where We See Opportunities After an Ugly Month for Stocks
-
After Earnings, Is Alphabet Stock a Buy, a Sell, or Fairly Valued?
-
When Will the Fed Start Cutting Interest Rates?
-
Berkshire Hathaway Earnings: Strong Insurance Results Continue to Lift Revenue and Profitability
-
10 Questions for Berkshire Hathaway’s 2024 Annual Meeting
-
After Earnings, Is Ford Stock a Buy, a Sell, or Fairly Valued?
-
3 Dividend Stocks for May 2024
-
Amgen Earnings: Obesity Drug Update Is Highly Encouraging
-
What’s Going on With Apple, Tesla, and Alphabet?
-
Apple Earnings: A Weak 2024, but Optimism for 2025
-
4 Utility Stocks to Play the AI Data Center Boom