Stocks of some of China's most popular companies slumped on Monday after fears arose regarding the potential for another COVID-19 surge. Additionally, a new wave of government regulatory crackdowns against the tech sector added to investor skepticism.
Shares of JD.com (JD -1.77%) slipped as much as 5.6%, New Oriental Education & Technology Group (EDU -6.44%) fell as much as 10%, and Huya (HUYA 3.48%) slumped as much as 10.7%. As of 11:52 a.m. ET, the trio were still trading lower, down 5.6%, 8.6%, and 8.9%, respectively.
Several developments weighed on the major Chinese market indexes on Monday, as the Hang Seng Index declined 2.8% and the Shanghai Composite Index was down 1.3%.
One of the biggest developments being considered by investors in China were fears regarding a new surge of COVID-19 cases. The government ordered casino operators in Macao to close down due to a round of new infections. This marks the first time since February 2020 that such a drastic step was necessary. The move came as Macao's administrators shuttered a majority of the city's businesses, including bars, movie theaters, and swimming pools. This action led to investor concerns that further lockdowns might be necessary to contain the outbreak.
There were other reasons for the downbeat mood. A number of high-profile cities in the country worked to contain additional outbreaks. Shanghai, China's largest city, identified numerous cases of the omicron BA.5 subvariant on Friday, and health officials are planning two additional rounds of mandatory COVID-19 testing for residents this week, which could lead to additional restrictions.
Finally, after believing the worst of the government crackdowns aimed at the tech sector were in the rearview mirror, a new round of sanctions emerged. The State Administration for Market Regulation announced that more than two dozen Chinese companies had been fined for violating government rules regarding the disclosure of mergers and acquisitions, running afoul of the country's antimonopoly regulations -- though it's important to note that JD.com wasn't one of the companies targeted. This latest round of fines renewed fears that crackdowns that have plagued Chinese technology companies could continue.
These latest developments add to growing investor skepticism regarding the near-term prospects for Chinese equities. Current estimates suggest that 31 cities in China are currently on some level of lockdown or restriction, affecting nearly 18% of the country's 1.4 billion citizens.
In recent months, investors have become increasingly bullish that China finally had a handle on the pandemic and the worst had passed for the world's largest population.
Recent renewed fears aside, however, not all Chinese stocks should be painted with the same brush. E-commerce platform JD.com could actually benefit from renewed restrictions, as consumers become further reliant on digital retail. Additionally, those on lockdown might turn to livestreaming video game platform Huya to while away the hours until restrictions are lifted. Finally, private educational service providers like New Oriental Education could attract additional pupils needing to keep up with their studies while forced to remain at home.
The pandemic is far from over, particularly given the ongoing emergence of new variants and subvariants, and it's entirely likely there could be another surge of infections, followed by additional measures taken by the Chinese government to contain the outbreaks.
For investors with a long-term outlook, however, Monday is just another day.