Asking questions is a central part of the educational process. But it only took one question from Chinese regulators to sell the shares of companies like
Eastern education and technology.
It also leaves US investors with questions of their own, including whether it is safe to invest in US-listed Chinese companies.
What is the question? The Chinese government could ask for-profit educational companies to non-profit organizations. That is not good. Investors can tolerate a lack of profit for startup companies. However, a long-term lack of profit is problematic.
The consequences are significant and widespread. stock up
(ticker: TAL) is down 54% in premarket trading.
New Eastern Education and Technology
(EDU) shares are down 48%. Shares of
(GOTU) are down 59% and shares of
17 Education and technology
(YQ) is down nearly 40%. The losses are enormous.
Dow Jones Industrial Average
futures, by comparison, are both up Friday morning.
Friday’s carnage in the stock market is another example of China’s regulatory apparatus tormenting foreign investors.
(DIDI) shares have fallen to $9.19, from a post-IPO peak of $18.01 on June 30, after Chinese authorities removed the ride-hailing app from stores. Looking back further, Jack Ma’s ANT Financial canceled its IPO due to clashes with Chinese regulators.
The common theme with all these stocks is that they are listed in the US. Investors should now ask themselves whether Chinese stocks with their primary listing in the US are safe.
(BABA) shares are down 3% in response to Friday’s news. Shares of Chinese EV Makers
(XPEV) are between 2% and 3%.
(JD) shares are down nearly 4%.
Datatrek’s Nicholas Colas pointed out in a note to customers on Friday that “it is no coincidence” that the MSCI China Index has fallen 20% since February, after gaining 50% from the previous year. The rewards of investing in a fast-growing economy have given way to the risk of a foreign regulatory crackdown.
This episode is also a reminder for investors to read the risk factors in the company’s Securities and Exchange Commission filings. New Oriental’s read: “The market price of our ADSs and/or our common stock is likely to be highly volatile and subject to wide swings in response to factors such as … regulatory investigations or other government proceedings against us.”
Write to email@example.com