Winners and losers in China's private-sector clampdown

BEIJING • Beijing's agenda to curb the rampant expansion of some private enterprises has sent stocks plunging in sectors ranging from gaming and after-school tutoring to healthcare and liquor.

Behind the crackdown is the Communist Party of China's drive to narrow China's wealth gap and keep in check the expansion of capital, as reflected in President Xi Jinping's increasingly vocal call for "common prosperity".

Meanwhile, industries seen as crucial for promoting the country's ambition to be a self-reliant manufacturing superpower and achieving carbon-neutral goals, such as semiconductors and renewable energy, are taking on a new shine for investors.

Since last month, China has published draft rules banning unfair online competition and vowed to better protect the rights of gig-economy workers, while state-run media has ratcheted up rhetoric regarding tighter oversight of online drug sales.

The barrage of new regulations has especially squeezed the MSCI China Index subgauges for communications services, consumer discretionary and healthcare, with each plummeting 21 per cent since June 30.

Internet bellwether Tencent Holdings is set for its worst quarter in a decade, with a 19 per cent loss.

Regulators last month ordered the company to give up exclusive music rights and rejected a merger of two game-streaming firms it has stakes in.

Sentiment took another blow this month after state media blasted digital games as "spiritual opium" and urged "zero tolerance" for "vulgar" content on live-streaming platforms.

The sell-offs in e-commerce stocks and private-education firms were even more brutal. Alibaba Group Holding has tumbled to record lows in Hong Kong while Meituan has sunk 29 per cent.

TAL Education Group is worth just a quarter of what it was a month ago, following a plethora of regulations prohibiting tutoring firms from making profits.

The move underscores efforts by the authorities to eradicate an inequality factor in China's competitive college entrance examination.

Shares of pharmaceutical companies and online medical service providers have also been dumped on fears of narrower profit margins.

The healthcare sector is believed to be a target of the Communist Party for squeezing livelihoods, widening the wealth-and-services gap and deterring people from starting families.

"We believe uncertainty will remain high across the Internet and other related sectors," said Mr Vincent Mortier, deputy group chief investment officer at Amundi.

"Education and healthcare are the other two sectors exposed to regulatory risks, and in particular the latter."

Investors have piled into industries seen benefiting from China's determination to meet its green goals and maintain its edge in electric vehicles, pushing the materials subgauge up by 11 per cent in the quarter to date.

Battery-makers such as Ganfeng Lithium have soared, while large steel mills have rallied, partly because product prices have risen after the government imposed output curbs to reduce emissions.

The utilities subgauge was propelled by power generation firms, whose prospects are buoyed by a shift to cleaner energy and their participation in the nation's nascent carbon-trading market.

Banks and industrials are probably "the safest" in the short term, said Mr Louis Lau, director of investments at Brandes Investment Partners.

While Hong Kong's Hang Seng Tech Index, with a heavy concentration of Chinese consumer Internet stocks, has plunged 25 per cent so far this year, Shanghai's Star 50 Index, which is loaded with semiconductor, renewable energy and high-end manufacturing companies, has risen 7.5 per cent.

The disparity shows just how much hardware tech - or innovation in chips, electric vehicles and high-end manufacturing - is now favoured by investors over software tech, which is seen as more geared towards marketing and fund raising.

Shanghai Bright Power Semiconductor has surged 162 per cent this year, while Trina Solar has jumped about 130 per cent.

BLOOMBERG