Fears of increased of regulation from Beijing crushed U.S.-listed Chinese stocks on Friday following a Chinese government crackdown on private educators.
U.S. shares of TAL Education Group (TAL.N) and New Oriental Education & Technology Group Inc (9901.HK), , which provide tutoring and test preparation services in China, each dropped more than 50% after news that the government is barring tutoring for profit in core school subjects to ease financial pressures on families that have contributed to low birth rates.
Heavyweight Chinese internet stocks also deepened a recent selloff as the move by China added to concerns about increased regulation of Chinese companies listed on Wall Street. Alibaba (9988.HK) and Baidu (9888.HK) both lost 4% and Didi Global (DIDI.N) tumbled 20%.
A broad crackdown on China’s massive internet sector has already rattled investors. Beijing launched a data-related cybersecurity investigation into ride-hailing giant Didi Global Inc (DIDI.N) just two days after it raised $4.4 billion in a New York initial public offering. Didi has fallen over 40% from its June 30 IPO price, while Baidu has tumbled 50% from its February record high and Alibaba is down 35% since October.
“A lot of the fast-money types had recently been trying to catch a falling knife, and some of these stocks started to look OK. But today looks like a complete capitulation, where guys can’t stomach the pain of regulatory uncertainty. People have just given up,” said Joel Kulina, a senior trader at Wedbush Securities who specializes in technology stocks.
The policy change threatens to decimate China’s $120 billion private tutoring industry and imperils the listing ambitions of numerous venture capital-backed education firms, including Alibaba-backed Zuoyebang, and online education platforms Yuanfudao and Classin, both backed by Tencent.
The KraneShares CSI China Internet ETF (KWEB.P) sank about 9%, leaving it down almost 30% year-to-date.