Naspers hammered on China crackdown

The share prices of Naspers and Prosus have suffered major declines following news of a regulatory crackdown in China.

Naspers’ share price declined from R295.30 per share on Friday to R248.75 on Tuesday — a decline of 15.8%. It reclaimed some of the losses on Wednesday, rising to R262.32.

Prosus’ stock was hit just as hard, falling from R138.45 per share to R116.12 over the same period — a drop of 16.1%. On Wednesday it climbed to R121.87 per share.

Both companies have substantial exposure to Tencent through Naspers’ 28.9% shareholding in the Chinese technology giant.

Tencent’s share price saw a decline of 20% between Friday and Wednesday, triggering a similar sell-off of Naspers and Prosus shares.

The only direct action China’s government took against Tencent was to order the company to end its exclusive music deals with copyright holders taken.

It also ordered Tencent and 13 other developers to rectify problems related to pop-ups within their apps.

The companies must address the “harassing” pop-up windows, which could contain misleading information or divert users away from the apps, the Ministry of Industry and Information Technology said in a statement on Wednesday.

Naspers share price — 22 July to 28 July 2021

Other regulators including the Cyberspace Administration of China have also pledged to tighten restrictions on misleading and explicit content used for marketing purposes.

The watchdog said such material will be subject to harsher oversight, issuing fines against companies like Tencent, Kuaishou Technology and Alibaba for offensive content.

However, the pressure on technology stocks and by extension Naspers is due to mounting uncertainty over what regulations China might impose next.

China’s government took strict steps against the country’s burgeoning private education and education technology sector.

It announced a broad set of reforms for private education companies, seeking to decrease workloads for students and overhaul a sector it says has been “hijacked by capital.”

The new regulations, released over the weekend, ban companies that teach school curriculums from making profits, raising capital or going public.

They can no longer offer tutoring related to the school syllabus on weekends or during vacations.

They also can’t give online or academic classes to children under the age of six, a segment of the population that had increasingly been pushed to start studying early.

“It’s kind of gone from the maybe interesting, the marginally understandable to the quite concerning. And it’s really difficult to understand what the Chinese authorities endgame is,” 10x Investments founder Steven Nathan told BizNews.

Nathan said that respected market commentators have been saying that this would be China’s century and that the United States is going to lose its global economic dominance.

“That seemed credible and logical, but what we’ve seen in the recent past is really questioning that,” said Nathan.

He said if China’s endgame is to turn its private businesses into state-owned enterprises — so that they run for public good rather than for profit — then that isn’t going to be a good place to be an investor.

Beijing’s clampdown on the booming private education industry has shocked even some of the most seasoned China watchers, prompting a rethink of how far Xi Jinping’s Communist Party is willing to go as it tightens its grip on the world’s second-largest economy.

Steven Nathan
Steven Nathan

The crash in tutoring stocks that began on Friday spread this week across the tech sector and beyond, after authorities confirmed reports they would ban a swathe of the education industry from making profits.

It’s the government’s most extreme step yet to rein in private businesses that regulators blame for exacerbating inequality, increasing financial risk and — in the case of some tech titans — challenging Beijing’s authority.

With losses in Chinese tech and education stocks now exceeding $1 trillion since February, the questions reverberating across trading desks from Shanghai to New York are where regulators might strike next and whether markets are properly discounting regulatory risk.

Property-management and food-delivery companies were among the biggest losers on Monday after Beijing signaled tighter rules for both sectors.

Tencent shares sank more than 5% Wednesday, adding to a three-day, 18% sell-off.

The company, China’s biggest by market value, on Tuesday suspended registrations for its WeChat services to rectify illegal behaviour online.

Reporting with Bloomberg

Now read: Naspers CEO Bob van Dijk under fire for value destruction

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Naspers hammered on China crackdown