A sweeping set of measures China has imposed on videogame makers, limiting the spending on the games by players, reverberated through stock markets across the globe Friday.
In Amsterdam trading, Prosus NV was down by as much as 20%, at one point losing as much as €15.5 billion ($17.1 billion) of market value, due to the damage the draft rules did to the value of the company’s stake in Chinese internet company Tencent Holdings Ltd. Naspers Ltd, its South African parent company also slumped by a fifth.
Tencent, of which, Prosus holds a 25% share, was down by 12% in Hong Kong. Meanwhile, the Nasdaq Golden Dragon China Index of Chinese stocks listed in the US, declined 2.4% in New York, as NetEase, a prominent videogame maker, led the losses.
One company Tencent invests in, Ubisoft Entertainment SA, dropped by as much as 8.3% in Paris trading, as its US counterpart, Unity Software Inc., also declined.
On Friday, the gaming regulator in China issued a series of draft rules which were designed to limit practices which are designed to persuade players to expend more time or money playing online games. The rules contained sweeping limitations on in-game rewards given in exchange for frequent log-ins or purchases, which heightened fears the Chinese government was on the cusp of another crackdown on an industry, in the world’s largest mobile gaming market.
On Saturday, state-owned China Press Publication Radio Film and Television Journal reported that the gaming regulator was planning to adjust the rules based on feedback from relevant government departments, companies, and users. The report offered no additional details.
Bloomberg Intelligence analyst John Davies said the slump in Prusus’s share prices showed the company was unable to control all the factors governing its profitability. He noted its stake in Tencent “casts a shadow over its other investments, and appears unlikely to change soon.”
Given that three-quarters of the sum of Prosus’s value is tied up with Tencent’s performance, its performance is closely linked to that of the Chinese giant. In a wide ranging variety of technology stocks within its portfolio, Prosus counts of the performance of Tencent given the size if its investment in it.
Prosus had been trimming its stake in Tencent for over a year, and it sought to fund a buyback program. Earlier in the month, the company had said that its ownership had fallen below 25%.
Meanwhile, Chinese equities have seen a bad year for performance get even worse. The decline on Friday drove the decline of the Golden Dragon even deeper to roughly 8%, placing it well beneath the Nasdaq’s overall gain of 54%.
Rajeev De Mello, a global macro fund manager at GAMA Asset Management said, “In a way it is a fitting end for a year that has severely disappointed China bulls. The performance gap between US and China equities is staggering.”
