Monday, July 4, 2022

Shares in China, Hong Kong dip on regulatory crackdown

blue-chip index

China’s blue-chip index dropped 3.22%, the Shanghai Composite Index declined 2.34%, and the Shenzhen Composite shed 2.28%

Shares in China and Hong Kong dropped sharply to their lowest levels this year on Monday, as education, property and tech sectors were routed on worries over government regulations.

The intense sell-off sent shares in Hong Kong-listed Scholar Education Group crashing more than 45%. Hong Kong stocks of New Oriental Education & Technology Group Inc dipped more than 47% after the company’s U.S. shares lost more than half of their value on Friday. The company provides tutoring and test preparation services in China.

In mainland China, the CSI Education Index ended down 9.61% at its lowest close in 16 months.

The shakeout in China’s $120 billion private tutoring sector follows Beijing’s announcement on Friday of new rules barring for-profit tutoring in core school subjects to ease financial pressures on families. The policy change also restricts foreign investment in the sector through mergers and acquisitions, franchises, or variable interest entity (VIEs) arrangements.

The weekend also brought new regulatory moves targeting technology and property, sparking sell-offs in those sectors in Hong Kong and mainland markets on Monday.

Louis Tse, managing director at Wealthy Securities in Hong Kong, said the education curbs were needed to prevent “chaos” in a profitable sector.

The Chinese government, in a way it’s right, they want to put a heavy hand and try to regulate that industry to make it more acceptable, he said. Of course investors, I won’t say they suffer. They won’t earn that much anymore, Louis said.

China’s blue-chip CSI300 index dropped 3.22% to close at its weakest close since December, the Shanghai Composite Index dropped 2.34% at a more than two-month closing low, and the Shenzhen Composite shed 2.28%.

Both the Shanghai and Shenzhen indexes were hit by heavy foreign-investor selling. On Monday, there were outflows of over 9 billion yuan ($1.39 billion) from A-shares, according to Refinitiv data.


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