HONG KONG (BLOOMBERG, REUTERS) - Chinese gaming stocks tumbled on Tuesday (Aug 31) after regulators cut back the amount of time children can play online each week to just three hours.
The Hang Seng Tech Index slid 1.5 per cent, led by shares of Bilibili and NetEase, which fell by at least 4.6 per cent in Hong Kong after declines in their American depositary receipts. Shares of Meituan dropped as much as 2.1 per cent as concerns over renewed regulatory crackdowns outweighed the food delivery company's strong second-quarter revenue beat.
Shares in Tencent, the world's largest gaming firm by revenue, slid 3.6 per cent in Tuesday trade. US-listed NetEase fell 3.4 per cent in overnight trade with its Hong Kong shares down by a similar amount on Tuesday.
Krafton, the South Korean company which earns fees by providing services for a similar game to its blockbuster "PlayerUnknown's Battlegrounds"(PUBG) to Tencent in China, fell 3.4 per cent.
Tokyo-listed Nexon and Koei Tecmo, which both have exposure to the Chinese market, were down 4.8 per cent and 3.7 per cent respectively.
"The regulatory environment is clearly continuing to pose a headwind for sentiment around China's tech stocks and it's tough to see a light at the end of the tunnel as that requires guessing the next move by the government," said Bloomberg Intelligence analyst Matthew Kanterman. "Until the regulatory situation has clarity towards a final resolution, the headwind will likely remain in place."
The escalation of restrictions on gaming adds to the pain for investors in Chinese technology companies, who have been hit by new rules on everything from ride-hailing platforms to online commerce to data security.
The latest move has also brought a halt to a spurt of bargain hunting that had helped the sector claw back some of its losses over the past week.
The new rules will allow gaming platforms to offer services to minors only from 8pm to 9pm on Fridays, weekends and public holidays, according to state news agency Xinhua, which cited a release by the National Press and Publication Administration. China had previously restricted gaming hours for teens to 1½hours per day in 2019.
The curbs in China rippled through into the Tokyo market, with Nexon and Koei Tecmo Holdings leading declines in Japanese video-game makers. Nexon fell as much as 5 per cent while Koei Tecmo dropped as much as 4.4 per cent. Nexon received about 28 per cent of its revenue from China in the last fiscal year.
Chinese gaming stocks listed in the US came under pressure on the news on Monday, with the American depositary receipts of NetEase, Tencent Holdings, Bilibili and Huya all falling.
The Nasdaq Golden Dragon China Index - which tracks 98 firms listed in the US that conduct a majority of their business in China - still managed to gain 0.7 per cent after earlier falling as much as 2.5 per cent. Yet the gauge has dropped 29 per cent this year, including about 47 per cent since its record high in February.
Beijing said the new rules were necessary to stop growing addiction to what it once described as "spiritual opium". The People's Daily, the official newspaper of the ruling Communist Party, said in an article on Monday after the rules were announced that the government had to be "ruthless".
It's "indisputable" that indulging in online games affects normal study life and the physical and mental health of teens, the article said. "Destroying a teenager will destroy a family."
Young players took to social media to express their outrage.
"This group of grandfathers and uncles who make these rules and regulations, have you ever played games? Do you understand that the best age for e-sports players is in their teens?" said one comment on China's Twitter-like Weibo.
"Sexual consent at 14, at 16, you can go out to work but you have to be 18 to play games. This is really a joke."
The hit to gaming stocks was relatively measured with analysts saying children in general did not provide much revenue for gaming companies, although they noted that the implications for the long-term growth of the industry were much more severe.
"The root of the problem here is not the immediate revenue impact," said Ms Mio Kato, an analyst who publishes on SmartKarma."The problem is that this move destroys the entire habit-forming nature of playing games at an early age."