Why Are Chinese Gaming Stocks Dropping?

Chinese stocks are having it rough of late as authorities crackdown on foreign-listed businesses, and now, gaming is in the crosshairs.

Aug. 3, 2021

Things seem to be going from bad to worse for Chinese stock investors as the Asian government continues to crack down on its massive conglomerates. 

Its latest target? Those darn video games.

Why are Chinese gaming stocks dropping?

Because like all of our mothers back in the day, the Chinese state media thinks video games are bad for you. 

Shares in the likes of Tencent, Netease, and Bilbili are in a downward spiral because of an article published in the Economic Information Daily, a news outlet affiliated with Chinese state media publisher Xinhua. The publication expressed the state’s growing concerns over the amount of time spent by youths on online gaming, describing it as similarly addictive to “opium”.

Normally, a news piece wouldn’t be much to go on in terms of a bearish investment thesis for an entire industry. After all, before becoming President, Joe Biden made a similar remark about the addictiveness of video games. 

However, this is China, and China is really cracking down these days. If the government feels that video games are damaging to its citizens, it could decide to impose taxes, fines, or even outright bans. While I doubt it will be as extreme as all that, it just further highlights the volatility of stocks in the region, especially those listed on the U.S. exchanges.

Incredibly though, amidst all of this, Chinese e-commerce giant JD.com is investing in its gaming business from partnering with companies to inform their device development to expanding their own e-sports team. Of course, most of its plans revolve around gaming-related goods, and not the practice itself, so there is no fear of regulatory action, while it can benefit from the growing gaming industry in China.

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MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here