Beijing’s recent crackdown against the technology sector caused a record drop in the value of US-traded shares held by Chinese companies as trading came to a close last Tuesday, July 27th.
Over the course of three days, Nasdaq’s Golden Dragon China Index dropped to more than 19%, its lowest dip to date. The plunge caused an erasure of nearly $839 billion in value, essentially negating the record high hit earlier this year. The Golden Dragon China Index serves as the Nasdaq’s tracking mechanism for 98 major Chinese companies listed in the United States.
However, market watchers don’t seem to be surprised at the ongoing slump. China’s recent imposition of policy changes has already put investors on edge. Still, the way regulators are now targeting related industries such as property and asset management as well as online learning is seen as a serious cause for concern.
Consequently, Chinese markets also slumped throughout Tuesday thanks to warnings from analysts that any gains are bound to be short-lived and rumors that US investors are getting rid of their assets in China and Hong Kong. To date, the accuracy of these rumors is yet to be confirmed.
The ensuing slump has seen a severe decline in performance for Chinese stocks being traded on Wall Street. Among those whose values have fallen by 2% are tech leaders Baidu Inc., Alibaba Group Holding Ltd., NIO Inc., and JD.com.
Online Education Takes a Nosedive
Online education, however, appears to have taken the most brutal hit, thanks to a new government policy preventing educational companies from raising funds through stock listings or getting funding from foreign investors. The policy was issued by the State Council of China, the nation’s top executive body, on July 19th.
As a result, values for US-traded companies TAL Education and New Oriental Education and Technology respectively nosedived by 70% and 54% a few days after the policy was made public. But both companies bounced back as trading ended on the 27th together with a third company, Gaotu Techedu Inc., by 12%.
However, online education isn’t the only industry covered by the new policy. The sweeping regulation also targets variable interest entities, which, until recently, were utilized by Chinese companies seeking to be listed in the United States. Beijing has stated it has begun cracking down on companies engaged in such activities.
However, this rebound on the part of the Chinese online education industry has not convinced experts that the pressure to sell has gone down. Indeed, market strategists advise that the current situation warrants closer monitoring over the next few weeks.
