Continued Gaming Stock Sell-Off Pushes China Stocks Near 14-Month Low

26 Dec, 2023

Continued Gaming Stock Sell-Off Pushes China Stocks Near 14-Month Low

On Christmas Day, a significant portion of Chinese stocks experienced a decline, with the benchmark nearing a 14-month low, extending the downward trend in online gaming shares despite attempts by the industry regulator to calm investors. The Shanghai Composite Index closed at 2,918.81, close to its lowest point since October 31, 2022, rising marginally by 0.1%. The CSI 300 Index, representing the most valuable stocks on Shanghai and Shenzhen exchanges, increased by 0.3%. However, Hong Kong's market remained closed for the Christmas holiday.

Several gaming stocks faced substantial declines, with Giant Network Group and Kingnet Network both plummeting by the daily limit of 10%. Additionally, 37 Interactive Entertainment Network Technology Group dropped nearly 8%, and Shanghai Yaoji Technology fell by 7.6%.

Following the uproar caused by a draft ruling announced on Friday, the National Press and Publication Administration, responsible for overseeing the online gaming sector, stated its intention to gather feedback from industry stakeholders to revise the ruling, which initially triggered the market turmoil. In response, the administration approved 105 video games, including titles operated by Tencent Holdings and NetEase, the highest number approved in 17 months.

Analysts like Zhang Liangwei from Soochow Securities in Shanghai emphasized that the draft rules aimed at fostering a healthy industry rather than restraining it, urging investors to monitor feedback progress.

The gaming industry giants, Tencent and NetEase, collectively lost $63 billion in market value in a single day due to concerns over the draft ruling's implications, which some investors interpreted as a fresh crackdown on the internet sector. The proposed regulations entail restrictions on account top-ups and bans on rewarding players for logins.

These newly proposed constraints add to the challenges faced by Chinese stocks, which have already struggled significantly in 2023, ranking among the world's poorest-performing major markets. The Shanghai Composite's 5.5% loss this year signals a second consecutive year of decline, while the CSI 300 has plummeted by 14%, mainly due to worries about China's post-COVID economic recovery sustainability.

Amidst this downturn, coal producers and banking stocks saw gains on Monday, driven by optimism about heightened winter demand for fuel. Huaibei Mining Holdings surged 4.2%, and China Citic Bank and China Everbright Bank also saw marginal increases as smaller lenders followed suit in adjusting deposit rates.

While most major Asian markets remained closed, Japan's Nikkei 225 climbed by 0.3%, and Taiwan's Taiex index added 0.1%.