December 5, 2022

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On Monday, Hong Kong and China’s shares tumbled sharply to their lowest in 2021, as investor concerns regarding government regulations affected stocks in the property, education, and tech sectors. There was a more than 45% share crash in the Scholar Education Group listed in Hong Kong due to the searing sell-off. There was also a 47% crash in Hong Kong stocks belonging to New Oriental Education & Technology Group Inc. after more than half of the value of its US shares was wiped out on Friday. The company provides test preparation and tutoring services in China.

As far as mainland share markets in China are concerned, there was a 9.61% fall in the CSI Education Index, as it hit its lowest value in 16 months. The private tutoring sector in China is worth $120 billion and it suffered from a shakeout because of the announcement by Beijing on Friday. According to the new rules, for-profit tutoring will no longer be permitted in core school subjects for easing the financial pressure experienced by families. The policy change also dictates that no foreign investment in the sector would be permitted through acquisitions and mergers, variable interest entity (VIE) arrangements, or franchises.

New regulatory moves were also brought on over the weekend that targeted property and technology, which sparked sell-off in these sectors in mainland markets and Hong Kong on Monday. According to some people, the education curbs had been needed for preventing ‘chaos’ in an otherwise profitable sector. In a way, the Chinese government appears to be right because they want to regulate the industry for making it more acceptable. However, there is no denying that it will be the investors who will suffer. There was a 3.22% decline in the blue-chip CSI300 index in China, which brought it to its weakest end since December. 

There was also a 2.34% decline in the Shanghai Composite Index, as it reached an almost two-month closing low, whereas a 2.28% fall in the Shenzhen Composite was reported. Heavy selling by foreign investors was the reason both the Shenzhen and Shanghai indexes were affected. The Hang Seng index in Hong Kong reached its lowest close since December 2020, as it fell by 4.13%. There was a 4.92% decline in the Hang Seng China Enterprises index. The benchmark index in Hong Kong was pummeled due to a fall in tech shares, with a 13.76% fall in index heavyweight Meituan. 

There was also a 6.38% fall in Alibaba Group Holding and 7.72% in Tencent Holdings. There was also a 6.57% decline in the Hang Seng Tech index, which erased almost all the gains made since its launch in July 2020. On Saturday, the market regulator in China said that Tencent would no longer be allowed to have exclusive music copyright agreements. Plus, the company was also fined for unfair market practices in the music market online. Investors were also spooked by the government’s efforts to rein in the property sector on Monday that appears to be overheated. 


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