Confused investors worry that China’s regulatory crackdown has no restrictions Reuters

© Reuters. In this illustrated picture taken on August 3, 2021, the logo of Tencent Games can be seen in the game on the mobile phone. REUTERS/Florence Lo/Illustration

Shanghai/Singapore (Reuters)-On Tuesday, confused investors in China’s technology industry once again rushed to buy from regulators, fearing that reports in the state media comparing online games to opium signaled a new frontier for a series of scrutiny against big companies .

This article was later revised to delete historically loaded opium references, but as investigations into auto chip distributors began, it disrupted a market that was still disturbed by the panic sell-off a week ago.

Shares of Tencent, a giant from social media to gaming, fell 6% and briefly separated from its position as the most valuable company in Asia, while semiconductor stocks fell because the move seemed to lift the calm promise of the authorities over the past few days.

Richard Kramer, managing partner of Arete Research, said: “This dripping of’potential’ regulations constitutes a tsunami of uncertainty.”

“People want to know when to buy, but there is nothing specific in the rules that can be used as a bottom line.”

The share price of game company NetEase (NASDAQ:) fell nearly 8% on Tuesday, while game developer XD Inc fell even more, down 8%, and mobile game company GMGE Technology Group Ltd fell nearly 14%.

China’s CSI All-Index Semiconductor and Semiconductor Equipment Index tumbled more than 6%. [.HK][.SS]

China’s State Administration for Market Regulation said it has launched an investigation into auto chip dealers for allegedly driving up prices.

An official media article published in the Economic Information Daily on Tuesday referred to a Tencent video game and called for more measures to address children’s addiction to the game originally described as “mental opium”.

The media is affiliated with Xinhua News Agency, China’s largest official news agency. The article quickly disappeared from the newspaper’s website and WeChat—Tencent’s stock rebounded—and later reappeared, removing the word “mental opium”.

Although opium addiction is a sensitive topic in China, it spread widely in the 19th century, sparking two Opium Wars and the “permanent” ceding of Hong Kong Island to Britain, but it is not clear why it was changed. Traders believe that the deletion is to ease the attack-even if it is just a cold comfort.

Dave Wang, portfolio manager of Singapore’s Nuvest Capital, which owns Tencent stocks, said of the disappearing story: “Most people tend to believe that there is no smoke without fire.”

“The gaming industry is expected to tighten further,” he added. “Before making more meaningful investments in China, many people are waiting and watching, waiting for when this crackdown will finally end.”

No restrictions

Investors believe that China is undergoing major changes as the government actively implements reforms aimed at reducing pressure on the cost of living at the expense of corporate interests.

The chaotic sell-off triggered by the leak of details of the education sector’s crackdown last week ended the worst month for the Chinese stock market in nearly three years as investors worried about where the next target might be.

At a meeting with foreign brokers last week, the China Securities Regulatory Commission tried to ease concerns by introducing more stable reforms, but Tuesday’s news raised new concerns that no place is safe.

Ether Yin, a partner at Beijing-based consulting firm Trivium, said: “(Stock price trend) shows how nervous investors have been recently.”

“They don’t believe that anything is unrestricted, and will react to anything in the official media that fits the technical crackdown narrative, sometimes overreacting.”

This nervousness coincides with the slowdown in China’s economy-factory activity has grown at its lowest level since February 2020 last month-and it has intensified the market’s widespread caution, even for those investments that believe the crackdown is controllable. The same is true for the person.

An analyst from the BlackRock (NYSE:) Investment Research Institute said in a report: “We believe that China’s greater control of certain industries will not bring global spillover risks, although this may cause market volatility.”

“We remain strategically neutral on the Chinese stock market and believe that further easing of monetary and fiscal policies will benefit China’s cyclical assets.”

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