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Why Huya Stock Is Down More Than 10% This Week

By James Brumley – Sep 10, 2021 at 12:31PM

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Just when it looks like China's regulators are done imposing new restrictions, they tack on one more.

What happened

As of midday Friday, shares of video game livestreaming outfit Huya (HUYA -5.20%) are down 10.3% for the week, mostly in response to reports that several of China's government agencies continue to clamp down on the country's video gaming industry.

So what

At first, it might sound like mere echoes of news that first broke a week ago, when China's National Press and Publication Administration announced that anyone under the age of 18 would be allowed to play video games for no more than three hours per week.

Falling stock chart on a computer screen.

Image source: Getty Images.

This is not a rerun of that news, however. On Wednesday of this week, regulatory groups including the Publicity Department of the Central Committee of the Communist Party of China, the Central Cyberspace Affairs Commission, as well as the aforementioned National Press and Publication Administration summoned the heads of video game companies like Tencent (TCEHY -1.61%) and NetEase (NTES 0.28%) to tell them (among other things) to focus less on profits.

The meeting also addressed livestreaming of video game play and gaming events, hitting Huya where it hurts the most.

Now what

This week's setback rekindles a lengthy pullback from Huya stock that looked like it might be finally coming to a close. Shares lost more than 70% of their value between February's high and last month's low before finally logging gains again. Up nearly 30% from August's low as of Wednesday's close, all of this week's loss has taken shape in just two trading days. And that's with Friday's modest rebound effort.

Still, all of the prospective bearishness surrounding this stock might not have played out yet.

The argument that China's regulators are willing and able to impose new rules without any warning has been made several times since late last year, and was validated again just this week. New rules and regulations are made on a relatively ad hoc basis, with these government mandates subject to little discussion and even less resistance. Almost as unknowable is the fiscal impact these and other new regulations will have on Huya, Tencent, and their peers.

For this reason, all of these names, including Huya, are best avoided by anyone except the most extreme of speculators.

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tencent Holdings. The Motley Fool recommends Huya Inc. and NetEase. The Motley Fool has a disclosure policy.

Stocks Mentioned

HUYA Inc. Stock Quote
HUYA Inc.
HUYA
$2.55 (-5.20%) $0.14
NetEase Stock Quote
NetEase
NTES
$68.40 (0.28%) $0.19
Tencent Stock Quote
Tencent
TCEHY
$39.19 (-1.61%) $0.64

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

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