China's Crackdown: Time to Sell?

Fund managers have had different responses to Beijing's latest regulatory changes, which have hit share prices of tech and education companies

James Gard 16 August, 2021 | 9:16AM
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China cityscape at night

After a stunning performance in 2020, China has been one of the weakest stock markets in the world this year as a number of political interventions have unsettled investors. From computer games to education, Beijing’s tough new regulations have had a material impact on the share prices of listed companies. But does this hardline approach mean that investors should steer clear of China, or is it just part of the risk associated with buying into the world’s second largest economy?

What's Happening in China?

China’s rulers are currently concerned about the nation’s youth, describing computer games as “spiritual opium” and insisting they cut down on screen time. They are also cracking down on online tutors, which have flourished amid rising anxiety about results among students and parents. Now these companies can’t make profits or receive foreign investment and the whole sector has been wrongfooted. Shares in the likes of New Oriental Education & Technology (09901), TAL Education (TAL), China East Education Holdings (00667), Wisdom Education (06068) and China Maple Leaf (01317) have crumbled. Morningstar analysts have placed some of these companies’ ratings under review until the situation becomes clearer.

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James Gard  is content editor for Morningstar.co.uk

 

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