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Why Chinese Education Stocks Crashed Again Today

By Rich Smith – Aug 25, 2021 at 12:43PM

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In China it's easy come, easy go -- but mostly easy go.

What happened

After rebounding strongly in Tuesday-morning trading, shares of Chinese education stocks have taken a U-turn today.

As of 12:05 p.m. EDT, the following are down:

  • 17 Education & Technology Group (YQ 15.39%), down 5.9%;
  • Gaotu Techedu (GOTU 11.11%), down 9%;
  • TAL Education (TAL 4.02%), bringing up the rear with a 9.1% loss.
Chinese flag superimposed on a stock market chart

Image source: Getty Images.

So what

Why is this happening? By now you know the overarching story of China's crackdown on for-profit education companies, right? Well, after Chinese regulators passed one -- hopefully -- final law on data privacy Monday, speculators began speculating that this might be the end of China's raft of regulations on the tech sector and perhaps the for-profit education sector as well.

As you'll recall, I suggested yesterday that investors jumping back into the market and bottom-fishing for cheap education stocks might be jumping the gun a bit -- that the better course of action would be to pause and make certain that no new regulations are coming before determining whether the share price losses these stocks have endured have resulted in true bargain valuations despite the regulations.

But it seems the share prices were just too cheap to resist.

Now what

Unfortunately, last night Bloomberg published a piece warning that yesterday's rally was only a "technical rebound."  

There are "lingering concerns about how far Beijing may push ahead with its clampdown on private enterprise," opines Bloomberg. The torrent of new laws being passed may not itself be past, and the "unprecedented regulatory assault" by Chinese government against its own country's companies may not yet be at an end.

Simply put, "Cyber security and data protection remain a firm focus for regulators in the short term," and as a result, as one market maven put it, "Uncertainty will remain high across the internet and other related sectors and, by extension, toward Chinese equity in general."

Don't say you weren't warned.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends TAL Education Group. The Motley Fool has a disclosure policy.

Stocks Mentioned

TAL Education Group Stock Quote
TAL Education Group
TAL
$5.69 (4.02%) $0.22
Gaotu Techedu Stock Quote
Gaotu Techedu
GOTU
$1.40 (11.11%) $0.14
17 Education & Technology Group Inc. Stock Quote
17 Education & Technology Group Inc.
YQ
$1.35 (15.39%) $0.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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