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China has taken great steps to regulate the education and training industry, and a group of Chinese education companies listed in the United States have “halved” their share prices within a day. The rapid decline involved other Chinese concept stocks, and investors fled in panic.
After three consecutive declines, many individual stocks and related indexes “repeatedly hit new lows.” Chinese officials came forward to appease investor sentiment, claiming that the purpose is not to suppress related industries, but to promote the healthy development of the industry, and reiterated “China’s firm determination to open up to the outside world.” No change”.
Chinese concept stocks listed in Hong Kong and the United States rose accordingly. However, analysts worry that the recent frequent actions surrounding Chinese technology companies may affect the overall valuation of Chinese companies by overseas investors in the long run.
Three consecutive days
This round of plunge began with a piece of news last Friday (July 23). Reuters quoted a source as saying that China will publish a document to prohibit the “capitalization” of education and training institutions, and even prohibit listing and financing.
As soon as the news came out, listed education stocks fell in response-New Oriental’s share price on the Hong Kong Stock Exchange was once “halved”. It closed down 54.22% in the US stock market and 63.26% in Gaotu, and the future fell by more than 70%.
On Saturday (24th), Chinese officials officially issued a document, which confirmed the rumors. Investor sentiment is also brewing over the weekend.
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There are many out-of-school training institutions in China, and the total scale is staggering.
“Black Friday” is not the end of the story. On Monday and Tuesday (26th and 27th), the selling sentiment has expanded from education stocks to the entire Chinese concept stocks. Within two trading days, the Nasdaq Golden Dragon China Index fell nearly 15%. The index consists of 98 largest Chinese stocks listed in the United States, which is the largest decline in the stock index since the financial tsunami.
Hong Kong’s Hang Seng Index also plunged sharply for two consecutive days. A sharp drop of 4.13% this week and a 4.22% drop this Tuesday made the HSI the worst-performing stock index among the G20 economies this year. Similarly, the slumping stocks also extended from the education industry to technology, medical and other sectors-Tencent fell 9% on Tuesday and Meituan fell 17.7%.
The sentiment in overseas markets also further spread to China’s A-share market. The Shanghai Stock Exchange and Shenzhen Stock Exchange fell 2.49% and 3.67% respectively on Tuesday.
In the five months from February of this year to the present, the value of the stocks of Chinese companies listed in the United States has been wiped out by approximately $770 billion. Education stocks fell even more than 90%, and Gaotu Group (formerly known as “Follow”), listed in the United States, fell to 2.4 yuan from its highest share price of nearly $150 at the beginning of the year.
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Chinese concept stock companies listed in the U.S. are caught between the regulators of the two countries, and have recently encountered stringent supervision.
Post late at night to soothe emotions
Such a sharp drop made the Chinese officials unable to sit still. Late at night on Wednesday (28th), the Chinese state media Xinhua News Agency stated that the recently introduced regulatory policies for the platform economy, education and training industries are conducive to China’s long-term development, and China’s firm determination to open to the outside world has not changed.
Xinhua News Agency pointed out that whether it is for the platform economy or off-campus training institutions, these regulatory policies are important measures to promote the standardized and healthy development of the industry, maintain network data security, and protect the livelihood of the society. They are not restricted and suppressed for related industries, but Conducive to the long-term economic and social development.
The article also stated that the fundamentals of China’s continued improvement of the economy have not changed, the pace of China’s reform and opening up remains firm, and the foundation for the development of China’s capital market remains solid.
At the same time, “The China Securities Regulatory Commission is open to companies in choosing where to list, supports companies in making choices based on their own development needs, and supports companies in using two markets and two resources to develop in compliance with laws and regulations.” This sentence was interpreted by the market as still allowed. Chinese companies go public in the United States.
At the time when the article was posted late at night, it was the trading time for US stocks. From education to technology, China concept stocks ushered in a collective rebound. In the education stocks, Gaotu and Hao Future rose higher, at 25.26% and 16% respectively; New Oriental was slightly less at 7%. But it is worth mentioning that this round of rebound is far from making up for the losses in the past three days.
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After Xinhua News Agency issued a document, China Concept Stocks ushered in a collective rebound.
In this round of rebound, US retail investors seem to have become the main force for taking over. Vanda, an independent research firm, said that when the fear of China’s concept stocks spread to US stocks, the successor army appeared again-electric car manufacturers Weilai and Xiaopeng, and technology giant Alibaba, among the top six US retail investors bought on Tuesday The list of stocks attracted a total of US$194 million in net inflows.
JPMorgan Chase released a report on Wednesday, tracking the capital flow of China-focused ETF funds and found that although institutional investors have recently continued to sell China concept stocks, “retail investors seem to be operating against the trend and will reduce the decline in China concept stocks this week. As a buying opportunity,”
Affected by this, the Nasdaq Golden Dragon China Index rose more than 9% on Wednesday after falling for four consecutive days.
Or affect the long-term valuation of China Concept Stocks
What trend changes are represented behind this strong supervision?
Song Xiangqian, founder of private equity investment firm Harvest Capital, said that Chinese entrepreneurs and investors must understand that the era of reckless pursuit of capital expansion is over, and a new era of fairness prior to efficiency has arrived.
Reuters quoted investors as saying that the new model, as Chinese leader Xi Jinping said, puts the promotion of common prosperity for all people ahead of pure pursuit of rapid growth.
Research published by the International Finance Association (IIF) shows that China’s income growth is facing a double dilemma. On the one hand, although household income has exceeded economic growth, both are slowing down, and household income is still lower than before the epidemic; on the other hand, On the one hand, the top 10% of households in China accounted for 47.5% of household wealth.
Even so, Chinese parents still disproportionately invest their personal income in the field of education-a survey conducted by the recruitment company 51job in 2019 showed that nearly 40% of parents spend 20-30% of their income on their children’s education. The ratio is seen as unsustainably high.
But this change is not without cost. Analysts at Jefferies said in a report that the authorities are trying to reduce social inequality while suppressing excessive price increases that undermine the cost of living, but the state intervenes in control. The private sector has intensified panic selling.
An Internet company venture capitalist in Shanghai analyzed to the BBC in Chinese that this time the level of supervision far exceeded market expectations, and the deterioration of Sino-U.S. relations, Ruixing’s fraud, and Didi’s delisting were superimposed. For foreign capital, Chinese Internet companies are not Increasing certainty may affect the overall valuation of these companies.
This effect may have already appeared.
“Until the regulations become clearer, the education industry will definitely not take any action. If you look at the upcoming transactions…you will see that valuations may generally not be as high as before,” Reuters quoted a Hong Kong-funded investment banker. Said that this may have nothing to do with the industry, but is more driven by the market’s perception of Chinese companies. “
Investors and bankers are now trying to find clues as to which industry will become the next target. Some pointed out that it may be those industries where entrepreneurs can quickly become super-rich and whose labor laws are relatively lax.
Many analysts and bankers still hold a conservative attitude. They believe that investors may retreat until China’s regulatory reforms are implemented.
“Before the market calmed down, most transactions were put on hold.” Reuters quoted a banker from a European institution as saying.