On December 22, shares of Tencent (HKEX: 700) and NetEase (HKEX: 9999) experienced a sharp decline following the release of draft guidelines by the Beijing government designed to restrain incentives contributing to excessive gaming and spending.
During mid-morning Friday trading, China’s National Press and Publication Administration unveiled the latest draft guidelines, causing a drop in the Hong Kong-listed shares of both Chinese companies, as reported by CNBC on December 22.
The agency additionally stated that it intends to prohibit online game operators from incorporating inducive rewards, alleging that such rewards lead consumers to spend more time and money on games.
Picks for you
The suggested regulations emerge as the most recent series of measures targeting online gaming by Chinese authorities, who have consistently expressed concerns regarding video games and internet addiction among the youth in the country.
Tencent lost 12%, while NetEase slumped by 20%
After the announcement, two of the largest developers and operators within the world’s largest online gaming market, Tencent and NetEase, suffered heavy losses.
Tencent experienced a decline of up to 15.7%, reaching HK$263.60 ($33.74) before recovering slightly to trade down approximately 12.7% at the price of HK$274 ($35.07), marking its lowest level since the end of November 2023.
The decline could result in Tencent losing 380.4 billion Hong Kong dollars ($49 billion) in market value.
NetEase suffered even more damage, as its shares experienced a decline of up to 28%, falling to HK$117.30 ($14.97). However, NetEase shares mitigated some losses to trade down approximately 20% at HK$129 ($16.51).
This decline could erase 106 billion Hong Kong dollars ($13.6 billion) from NetEase’s market capitalization.
In May, S&P Global Ratings observed that regulatory constraints on the internet sector in China had eased in the past year. However, analysts warned of anticipated ongoing regulatory measures, especially in data security and content moderation, well into the foreseeable future, making this move slightly less surprising.
Buy stocks now with Interactive Brokers – the most advanced investment platform
Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.
