Every week brings more bad news for investors in Chinese companies. The latest victim is the video game sector, following a clampdown on ride hailing services, e-commerce platforms and education sectors not too long ago. On Monday this week, China imposed a new rule that minors would no longer be allowed to play online video games during school week and only one hour a day on Friday, weekends and holidays. The rule took effect on Wednesday and required all video gamers to register using their full names and government issued IDs. Video gaming stocks listed in US stock markets – Tencent Holdings, NetEase Inc., and Billbill Inc., tumbled on Tuesday and took along with it US companies that have exposure to the Chinese video gaming market – Take Two Interactive Software, Roblox and Activision Blizzard.
One wonders which sector is going to be next? The answer – The Entertainment Industry.
Future Wealth’s View
Just last week, we had highlighted reasons to avoid China in our article – link is here: https://futurewealthllc.
We can all agree that video games are the single most destructive platform for minors to get distracted, become antisocial and deteriorate in their commitment to school responsibilities. However, we are appalled by the intrusion of the Chinese government into people’s lives and the extent of its reach into regulating industries that have played by the rules until now.
We, at Future Wealth LLC, believe that the Entertainment industry with its celebrities is next in line for regulation by the Chinese government. Already, the government has imposed that songs and films cannot be ranked on social media by name and can only be ranked without mentioning the name of the performer. Platforms such as Weibo (Twitter of China) and other social media platforms have immediately felt impact from its user base.
Given this backdrop, the primary risk for investors in Chinese stocks is now government/political risk. If investors have not adjusted their portfolios to reduce their exposure to the Chinese stock market, they may be in for some serious pain soon.