Shares in Tencent Holdings Limited (HKG:0700) and other online gaming companies in China were sent tumbling after a state-run media outlet unleashed some stinging criticism of the industry.
The Economic Information Daily, run by the state-owned Xinhua News Agency, called online games “spiritual opium” and “electronic drugs”.
In an article that was quickly picked up by Bloomberg, the publication pointed to a student who reported their schoolmates played a popular Tencent game for eight hours a day.
Tencent shares, along with rivals NetEase Inc (NASDAQ:NTES) and XD Inc, plunged around 10%, before easing off later.
Investors fear that online gaming will be the next sector to come under pressure from the authorities, analysts said.
In London, many investment trusts, led by Scottish Mortgage Investment Trust PLC (LSE:SMT), have big stakes in Tencent and were sent lower last week as the Chinese company was hit by new regulations.
SMT shares were little moved on Tuesday morning, but Fidelity China Special Situations PLC (LSE:FCSS) and Asia Dragon Trust PLC were both down more than 1%, with other big holders in the red including Manchester & London Investment Trust plc (LSE:MNL), JPMorgan China Growth & Income PLC and Templeton Emerging Markets Investment Trust PLC (LSE:TEM, FRA:1NK).
Market analyst Naeem Aslam at AvaTrade said: “Authorities in China are releasing new headlines pretty much every day and this is having a profound influence not only on Chinese stocks but rest of the Asian markets as well.
“In addition to this, investors have also wall of worry to climb when it comes to Chinese companies listing for an IPO in the US and that process has become a lot more cumbersome as it requires improvement in the transparency.”
US market authorities also recently pressed pause on IPOs of Chinese companies as it prepared to set out more comprehensive disclosure rules.
“This is turning out to be one of the big stories of 2021 for global markets, overshadowing what many people thought would the key focal point for Asia – namely a year of strong economic growth," said analysts at AJ Bell.
Indeed, with many investors underweight to allocations to Chinese assets this will probably be viewed as "another dip to buy, given China's potential growth rate, and above all the all-pervasive financial repression in developed world markets," said Marc Ostwald, chief economist & global strategist at ADM Investor Services.
"However it still adds a layer of risk to Chinese assets, and ultimately will be a serious impediment to China's growth potential," he added.
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