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The Wall Street Publication > Blog > Tech > Chinese Internet Stocks Hit Three-Month High
Tech

Chinese Internet Stocks Hit Three-Month High

Editorial Board Published June 8, 2022
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Chinese Internet Stocks Hit Three-Month High
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Chinese internet stocks jumped to a three-month high after regulators in China cleared dozens of videogames for release, a move investors welcomed as a new sign that Beijing is softening its stance on the technology sector.

Late Tuesday, the country’s National Press and Publication Administration said it had approved 60 videogame titles. The regulator had given the green light to a smaller batch of games in April, and before that hadn’t granted any approvals since last July.

Shares in Bilibili Inc., BILI 5.99% a video and gaming company, led gains in Hong Kong on Wednesday, surging 20%. The city’s Hang Seng Tech Index advanced 4.8% to close at its highest level since early March.

“Regulatory pressure has eased,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities. He said the new gaming approvals were another positive signal for the internet sector, and had a spillover effect onto other companies including Alibaba Group Holding Ltd. BABA 14.67% , the e-commerce giant.

Alibaba’s Hong Kong-listed shares jumped 10% Wednesday, while those in the gaming and social-media heavyweight Tencent Holdings Ltd. TCEHY 7.57% rose 6.5%. Neither Tencent nor smaller rival NetEase Inc. NTES 3.23% had any games in the two most recent batches of approvals. Bilibili also didn’t have any games approved in this round.

Chinese tech companies have endured a sweeping crackdown since late 2020, when Beijing halted the blockbuster initial public offering of Alibaba’s financial-technology affiliate, Ant Group Co. In another key initiative, authorities last August introduced rules limiting minors to three hours a week of online videogaming.

However, as China’s economy has slowed sharply this year, the tone has shifted, and top Chinese policy-making bodies, including the Politburo of the ruling Communist Party, have expressed their support for the sector.

In another sign of easing policy, on Monday The Wall Street Journal reported that China was concluding a yearlong probe into ride-hailing giant Didi Global Inc., DIDI 12.05% one of the companies that was hardest-hit in the tech clampdown.

Analysts at Citigroup said Tuesday’s approvals bolstered their confidence that the pace of game approvals was returning to normal, as major Chinese cities reopen after strict lockdowns, and with tough measures now in place to protect younger gamers. They said Tencent’s and NetEase’s titles are likely to be included in subsequent batches of game approvals.

The recent string of positive economic and regulatory developments have all helped to lift the market’s mood, said Pruksa Iamthongthong, a senior investment director at Abrdn. “There’s an understanding that the worst is over in terms of regulation, and we are seeing light at the end of the tunnel,” said Ms. Iamthongthong, a co-manager of the Asia Dragon Trust, which owns some large Chinese internet stocks.

Separately Wednesday, Tencent said it would roll out its “Honor of Kings” title internationally by the end of this year. Tencent’s flagship mobile game, which allows teams of players to battle one another online, has more than 95% of its users in China and remains the biggest profit driver for Tencent’s domestic games segment.

The global rollout comes as Tencent faces growing competition at home and is more actively expanding overseas. Its revenue from domestic games declined 1% from a year earlier in the quarter ended March, while that of international games still grew 4%.

China’s Tencent is backing the developers of blockbuster videogames such as “Pokémon Unite” and “League of Legends.” But Beijing’s crackdown on the industry at home, including when minors can play online games, could affect the company’s global videogame empire. Photo composite: Sharon Shi

Despite the rally, Chinese internet stocks remain far from their peaks. The Hang Seng Tech Index is still down about 15% year-to-date, for example, and down 56% from a record high reached in February 2021.

“China’s internet stocks have been one of the most unloved assets over the past year, and trade at a meaningful discount to historical valuations,” said David Chao, global market strategist for Asia Pacific at Invesco. “Any material hint that we’re coming out of the regulatory woods is a welcome sign,” he added.

—Serena Ng contributed to this article.

Write to Raffaele Huang at [email protected] and Cao Li at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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