What happened

Shares of Huya (NYSE:HUYA) were tumbling over 9% in morning trading Monday after an analyst at CLSA issued a double downgrade of the Chinese video game live-streaming leader from buy to underperform.

So what

Analyst Sally Chan joins a number of other analysts who have scaled back their outlook for the stock, though most were based on valuation. Shares of the gaming streamer were up over 50% before the downgrade as it and DouYu International Holdings (NASDAQ:DOYU) plan a merger under the auspices of Tencent Holdings, which owns a stake in both of them.

Smiling male looking at smartphone

Image source: Getty Images.

However, China's state regulators have announced their intention to take a closer look at the union as it would create a live-streaming giant, owning about 80% of the market. 

Regulators also began looking at other deals as part of a broader anti-monopoly probe, and fined Alibaba Group Holding about $76,500 for not seeking regulatory preapproval of its move to increase its ownership interest in department store chain Intime Retail Group. They also fined Tencent spinoff China Literature for failing to report its acquisition of TV producer New Classics Media.

Now what

Last week regulators issued final rules on antitrust behavior that could hold Huya and DouYu to new standards. And last month a short-seller alleged DouYu was encouraging streamers to sidestep anti-gambling laws by hosting online lotteries.

There may be more scrutiny of this video game stock deal by regulators before it is completed.

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