China and Hong Kong shares fell sharply to their lowest this year on Monday, as investor worries over government regulations battered stocks in the education, property and tech sectors.
The searing sell-off sent Hong Kong-listed Scholar Education Group (1769.HK) shares crashing more than 45%. Hong Kong stocks of New Oriental Education & Technology Group Inc (9901.HK) plummeted more than 47% after the company’s U.S. shares lost over half of their value on Friday. The company provides tutoring and test preparation services in China.
On China mainland share markets, the CSI Education Index (.CSI930717) ended down 9.61% at its lowest close in 16 months.
The shakeout in China’s $120 billion private tutoring sector follows Beijing’s announcement on Friday of new rules barring for-profit tutoring in core school subjects to ease financial pressures on families. The policy change also restricts foreign investment in the sector through mergers and acquisitions, franchises, or variable interest entity (VIEs) arrangements.
The weekend also brought new regulatory moves targeting technology and property, sparking sell-offs in those sectors in Hong Kong and mainland markets on Monday.
Louis Tse, managing director at Wealthy Securities in Hong Kong, said the education curbs were needed to prevent “chaos” in a profitable sector.
“The Chinese government…in a way it’s right, they want to put a heavy hand and try to regulate that industry to make it more acceptable,” he said. “Of course investors…I won’t say they suffer. They won’t earn that much anymore.”
China’s blue-chip CSI300 index (.CSI300) fell 3.22% to end at its weakest close since December, the Shanghai Composite Index (.SSEC) declined 2.34% at a more than two-month closing low, and the Shenzhen Composite (.SZSC) fell 2.28%.
Both the Shanghai and Shenzhen indexes were hit by heavy foreign-investor selling. Refinitiv data showed outflows of more than 9 billion yuan ($1.39 billion) from A-shares on Monday. (.NQUOTA.ZK), (.NQUOTA.SH)
In Hong Kong, the Hang Seng index (.HSI) notched its lowest close since Dec. 22, 2020, down 4.13%. The Hang Seng China Enterprises index (.HSCE) tumbled 4.92%.
Hong Kong’s benchmark index was pummelled as tech shares plunged, with index heavyweight Meituan (3690.HK) dropping 13.76% on the day. Alibaba Group Holding (9988.HK) fell 6.38% and Tencent Holdings (0700.HK) lost 7.72%.
The Hang Seng Tech index (.HSTECH) slumped 6.57%, nearly erasing all gains since its inception in July 2020.
China’s market regulator said on Saturday that it would bar Tencent from exclusive music copyright agreements, and fined the company for unfair market practices in the online music market.
Government efforts to rein in an overheated property sector also spooked investors on Monday, sending the CSI 300 Real Estate index (.CSI000952) down 6.13% to its lowest close since September 2015, while the Hang Seng Properties index (.HSNP) fell more than 3%.
Media reports that China’s central bank has ordered lenders in Shanghai to raise the rate of mortgage loans for first-time homebuyers followed a statement from the housing ministry on Friday that China will strive to clean up irregularities in the property market in three years.
Shares in China Evergrande Group (3333.HK), the heavily indebted developer whose financing difficulties have stoked broader apprehensions about the outlook for the property sector, fell 6.34%. Evergrande shares have fallen by more than a third this month, and are down nearly 55% this year.
Fellow developer Country Garden Holdings Co (2007.HK) dropped 3.39%.
“We believe China’s economy, and specifically its financial system, will face significant risks in coming months due to the unprecedented tightening measures applied to the property sector,” economists at Nomura said in a note on Monday.