Banking

Beijing Targets ‘Spiritual Opium’ As Wall Street Eyes Huge Rotation Out Of China Stocks

China renewed fears Tuesday that Beijing’s private-sector crackdown would continue to spread, this time to the gaming industry. Tencent stock and other China stocks sold off.

The latest drop came after a news outlet linked to Xinhua, China’s official news agency, criticized online gaming as addictive to minors, calling it “spiritual opium,” according to news reports.

The article, which appeared in the Economic Information Daily, urged more constraints on the industry. And it specifically called out Tencent (TCEHY) and its popular game “Honor of Kings,” which it said consumed hours of students’ time.

Tencent, in turn, vowed to curb playing time for younger gamers and said it planned to bar in-game purchases for gamers under 12, according to Bloomberg. The company also raised the prospect of a ban on games for users under the age of 12, Bloomberg said.

The article later appeared without the narcotics references, the outlet said. But U.S.-listed shares of Tencent stock remained at intraday lows Tuesday.

As Tencent stock and gaming stocks fell on Tuesday, Wedbush analyst Daniel Ives, in a research note on Tuesday, said China’s scrutiny of its own economy could help the U.S.

“It feels like every day there is another regulatory shot across the bow from Beijing which is adding pronounced risks to Chinese tech stocks across the board,” he said.

Thus, he continued, “we continue to see a massive rotation from the China tech sector into the US tech stocks heading into year-end.”

Tencent Stock, China Stocks Hit

Tencent stock fell 7.3% in the stock market today. China gaming portal NetEase (NTES) tumbled 10.6%. Bilibili (IBD), which draws most of its revenue from mobile games, gave up 9%.

Among other gaming-related China stocks, Huya (HUYA) was down 8%, and Doyu (DOYU) fell 6.3%.

China e-commerce giant Alibaba (BABA), which reported mixed earnings on Tuesday, fell 3%.

U.S.-based gaming stocks sold off as well. Activision Blizzard (ATVI) fell 5.3%. Take Two Interactive (TTWO) was down 9.7%. Electronic Arts (EA) fell 3.7%.

China has tightened regulations on multiple digital industries that have grown in popularity or attracted investors, citing concerns over data security, energy consumption and competition.

The nation has also clamped down on cryptocurrency-related activity. It has placed stiff new restrictions on China’s online education industry, which grew during the coronavirus pandemic but raised concerns about overaggressive promotional tactics and over-exuberant investors. The nation began a cybersecurity investigation of ride-hailing company Didi (DIDI) after its IPO in June.

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