Fears over China cracking down on yet another industry sent education stocks tumbling this week. On Friday alone, $EDU (New Oriental Education) was down 54%, $GOTU (Gaotu Techedu) down 63%, and $TAL (TAL Education) down 71%. Shares of these companies are now down 80-90% year-to-date.
What is the concern? In a “worst-case scenario,” China could ban teaching on weekends and holidays and force these companies to become non-profits. China has said it wants to “ease the financial burden” associated with child-rearing, including the cost of education. And in recent months, authorities have called for less homework and after-school tutoring for students, saying “we shouldn’t let an industry with social conscience become a profit-seeking one.”
The divergence with US equities has become stark. While US Internet stocks ($FDN) ended the week at all time highs (+18% YTD), Chinese internet stocks ($KWEB) ended the week at 52-week lows (-28% YTD).
One of my biggest disagreements with Cathie is on her blithe optimism on Chinese stocks. Looks like she’s having second thought now.
As the clampdown has intensified, so has Wood’s flight from Chinese stocks. Her largest fund, the ARK Innovation ETF, now has only 0.32% of its $23 billion in assets invested in Chinese companies, compared to 8% in February. About 3.8% of the ARK Next Generation Internet ETF’s holdings is still invested in China, but that’s down from almost 9% earlier this year.
China’s technology giants continued to reel, with Tencent Holdings 700 losing 9% and Alibaba Group 9988BABA losing 8%. Alibaba Health Information Technology 241 dropped 19%.
If you really understand the economy, esp banking sectors/funds how they operate, nothing to do with Xi or anyone, but it is complete over valuation and shrinking due to economy.
News/Media assigns some interesting reason, which will increase the circulation, for every down day.
Even if regulatory effect is not there, stocks will dip and news/media attach a different nice story to it.
Same case in USA, they will soon attach any nice story, but market will correct on its own until stock market goes down below its actual value.
This is pure economic cycle, bank/big funds take profit when companies are declaring record profits.
More and more common investors (novice redditian like) jump/buy stocks when companies are declaring exceptional profits, banks/big funds dump stocks on their head and run away with profits.
Their idea “Stonks only go up” concept won’t work.
Investors must understand DCF or common valuation first, and they must have knowledge to know the difference between hypes and real valuation.
Otherwise, common investors are left with SPY/QQQ etfs or luck (like hanera) to board on a good company.
Market creates multiple ATH only to fool retail investors to attract more buying.
Why would VC, especially foreign VC firms, invest in Chinese startups if their value can vaporize overnight?
It’s not just mega Chinese tech firms who see their value drop bigly. Many smaller firms dropped even more. In fact it’s the big ones who will survive this round of bloodletting. By scaring the bejesus out of investors it will be way more expensive for Chinese firms to raise money in the future.
Again same thinking. The belief that government or bureaucrats understand what is the right size of operation for a company. The size of operation is best determined by the size of demand of the services and products of the company. This is called matching principle. The supply should match demand for the most efficient operation.
Love to see Xi kill his own golden geese though. Money leaving the Chinese market will come back to US. Fund managers like Cathie who sold China will use the fund to buy American.
Actually this round of Chinese stock meltdown is a walk in the park compared to the upcoming real estate crash in China. Xi wants to change the school district enrollment rules to “help” parents make more kids for his empire. Folks who paid millions of USD for small apartments in Beijing or Shanghai will see their net worth cut 2/3 or more overnight.
Cathie’s buys/sells are open and news/media is posting the details. Cathie is active fund, and changes dynamically. If she is not selling, soon she will be doomed and people run away from her fund.
Bigger than Chinese sell off, USA funds sold their stocks and keeping it in money market funds (That is showing in Reverse Repo $927 Billion).
US sell off is waiting for this week results only. See what is happening with AAPL and MSFT, whatever may be the outstanding results, they are going to tank.
It is the start of world wide recession and sell off is common to China, USA, Euro or elsewhere until it goes down way below global valuation. If tomorrow market jumps, after FED mtg, it is only temporary.
