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    1769   KYG7853U1094

SCHOLAR EDUCATION GROUP

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International investor concerns mount over China's tech rout

07/28/2021 | 02:19am EDT

LONDON, July 27 (Reuters) - International investors were feeling bruised and uncertain on Tuesday as a third day of heavy selling hammered China's top tech stocks and began to seep into currency and debt markets.

China's rise in global indexes in recent decades means money managers are more exposed than ever as Beijing seeks to reduce the dominance of some of its tech, property, ride-hailing and even private education firms.

Tuesday's falls included a 9% plunge in internet giant Tencent, its worst in a decade, as its WeChat social network suspended user registrations while it underwent an upgrade "to align with all relevant laws and regulations".

China's blue-chip index dropped to its lowest in nearly eight months, the yuan hit its lowest since April and Hong Kong slumped 5%.

In U.S. trading, the Nasdaq Golden Dragon China benchmark of Chinese tech stocks listed in New York fell another 6%, taking its losses since Friday past 20% and wiping $500 billion off its value.

"The spectre of state intervention into controlling the private sector has created a crescendo of panic selling," said Sean Darby at Jefferies, calling it an iron fist in a velvet glove.

William Russell, head of product specialists equity at Allianz Global Investors, said the moves had left investors blindsided.

"A key question is what are policymakers in China trying to achieve?" Russell said. One thing was clear, he said: Beijing wanted to prevent companies becoming too dominant.

China is readying a Personal Information Protection Law which calls for tech platforms to impose stricter measures to ensure secure storage of user data.

Beijing-based tech consultant Zhou Zhanggui said investors were over-reacting to the "rectification" of Chinese tech companies.

The Institute of International Finance (IIF) estimated that China's equity markets suffered outflows of $600 million on Tuesday after bleeding $2 billion on Monday.

Monday's sell-off was triggered by a clampdown on the $100 billion private education industry which sent shares of tutoring providers such as New Oriental Education & Tech Group and Scholar Education Group down more than 45%.

The sell-off is creating a “risk is that you get some kind of contagion across all Chinese equities ... and investors will get really cautious,” said Rand Wrighton, head of international equities at Barrow Hanley Global Investors.

U.S. exchange traded firm ARK Invest, headed by celebrity fund manager Cathie Wood, said it had dumped shares of Alibaba , Baidu, Tencent, KE Holdings and Byd.

The firm has also begun cutting stakes in JD.com and game-streaming company Huya since Beijing launched a crackdown on ride-hailing company Didi Global.

Tuesday's heavy falls in Asia also included delivery platform Meituan, which dropped 17%, and ecommerce company Alibaba, which tumbled nearly 8%

Tencent and Alibaba account for 10% of MSCI’s $8 trillion Emerging Market index. Chinese firms make up around 37% of the index, up from 17% a decade ago.

Investment banks estimate U.S. investors hold about $1 trillion of Chinese internet and tech stocks, or have U.S. listings known as American Depositary Receipts (ADRs) that Washington has also been clamping down on over the past year.

"It's definitely a reminder to investors of the risks in emerging markets," said Gael Combes, head of fundamental research equities at Unigestion.

While the market had known state-owned enterprises were used to pilot the economy, "the tech, internet and fintech companies were valued close to the valuation we'd have in the U.S., and so didn't discount the regulatory risk," he said.

AXA's Sailesh Lad said fixed income markets were also affected.

Chinese 10-year government bond futures were down 0.35%. Bonds in property company Evergrade have now halved in price since late May amid concern about its future.

On contagion risk, investment firm Mirabaud underlined that other than Tencent's founders, only one Chinese institution is on the list of its top 20 shareholders.

Alibaba's biggest shareholder is Softbank, the U.S. ADR top 20 list is full of U.S. and international funds, and the Hong Kong listing is also dominated by international institutions. There is also no Chinese institution in the top 25 holders of the third of the BATs trio, Baidu.

Arnim Holzer, strategist with EAB Investment Group, is advising clients to hedge their portfolios against further China-related volatility in a number of ways, including options positions that would profit from swings in emerging market bonds.

“While I think we may be approaching a bottom in some of the hard-hit Chinese stocks, there is still a likelihood that investors may need to de-risk some of their technology-oriented portfolios,” he said.

(Additional reporting by Medha Singh, Danilo Masoni, Sujata Rao and Karin Strohecker in London and Rodrigo Campos, Saqib Ahmed and David Randall in New York; editing by Timothy Heritage)


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
ALIBABA GROUP HOLDING LIMITED -0.86% 150.18 Delayed Quote.-34.91%
ARK INNOVATION ETF ACC - USD 0.86% 117.14 Delayed Quote.-6.71%
AUSTRALIAN DOLLAR / CHINESE YUAN RENMINBI (AUD/CNY) -0.37% 4.673263 Delayed Quote.-6.43%
BAIDU, INC. 1.43% 156.71 Delayed Quote.-28.55%
BRITISH POUND / CHINESE YUAN RENMINBI (GBP/CNY) -0.03% 8.825661 Delayed Quote.-0.52%
CANADIAN DOLLAR / CHINESE YUAN RENMINBI (CAD/CNY) 0.00% 5.0455 Delayed Quote.-1.21%
DIDI GLOBAL INC. -1.81% 7.61 Delayed Quote.0.00%
EAB GROUP OYJ 0.00% 2.99 Delayed Quote.-4.78%
EURO / CHINESE YUAN RENMINBI (EUR/CNY) -0.07% 7.5811 Delayed Quote.-4.86%
INDIAN RUPEE / CHINESE YUAN RENMINBI (INR/CNY) -0.09% 0.087719 Delayed Quote.-1.79%
KE HOLDINGS INC. 6.65% 16.68 Delayed Quote.-74.59%
MEITUAN -1.71% 230.6 End-of-day quote.-21.72%
NASDAQ COMP. 0.22% 14746.397621 Real-time Quote.16.73%
SCHOLAR EDUCATION GROUP 5.41% 1.56 End-of-day quote.-88.00%
TENCENT HOLDINGS LIMITED -0.92% 450 End-of-day quote.-20.21%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.01% 6.4778 Delayed Quote.-0.25%
US DOLLAR / CHINESE YUAN RENMINBI (USD/CNY) 0.00% 6.4655 Delayed Quote.-0.91%
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Financials
Sales 2021 1 117 M 173 M 173 M
Net income 2021 143 M 22,1 M 22,1 M
Net cash 2021 288 M 44,6 M 44,6 M
P/E ratio 2021 5,04x
Yield 2021 5,96%
Capitalization 867 M 111 M 134 M
EV / Sales 2021 0,52x
EV / Sales 2022 0,27x
Nbr of Employees 3 631
Free-Float 25,0%
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Number of Analysts 3
Last Close Price 1,56 HKD
Average target price 8,25 HKD
Spread / Average Target 429%
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Managers and Directors
Mingzhi Qi Chief Executive Officer & Executive Director
Wai Hang So Chief Financial Officer & Secretary
Qiyuan Chen Chairman
Wei De Huang Independent Non-Executive Director
Jian Hua Liu Independent Non-Executive Director