China’s recent introduction of restrictive measures on video-game spending has reverberated through global stock markets, causing significant declines in key players.
Prosus NV and Tencent Holdings Ltd: Prosus NV experienced a substantial 20% drop in Amsterdam trading, wiping out €15.5 billion ($17.1 billion) in market value due to the impact of new regulations on Tencent, in which Prosus holds a 25% stake. The South African parent company, Naspers Ltd, also faced a 20% slump. The regulatory draft rules dealt a blow to the value of Prosus’s holding in Tencent, influencing its overall stock performance.
Tencent Holdings Ltd: In Hong Kong, Tencent, in which Prosus holds a significant stake, saw a 12% decline. The repercussions extended to US-listed Chinese stocks, with the Nasdaq Golden Dragon China Index dropping 2.4%. Video-game maker NetEase Inc. led losses in this segment.
Other Global Companies Affected: Ubisoft Entertainment SA, in which Tencent has investments, faced an 8.3% decline in Paris trading. US peer Unity Software Inc. also experienced a decline. The impact of China’s gaming regulator’s draft rules is evident in the global video-game industry.
Prosus’s Sensitivity and Tencent Stake: Prosus’s stock sensitivity to factors beyond its control, particularly its Tencent stake, highlights the interconnected nature of its investments. Analysts note that the Tencent stake casts a shadow over Prosus’s other holdings. Prosus has been gradually reducing its investment in Tencent over the past year, with its ownership dropping below 25% recently.
Market Reaction and Performance: The FTSE/JSE Africa All Shares Index in Johannesburg declined by as much as 1.8%, with Naspers and Prosus being the primary contributors to the market downturn. Chinese equities, represented by the Golden Dragon Index, have underperformed throughout 2023, with the recent decline deepening the gap compared to the Nasdaq 100’s significant gain of 54%.
Market Observations: Commenting on the market dynamics, Rajeev De Mello, a global macro fund manager at GAMA Asset Management, noted the disappointing performance of China equities in 2023, emphasizing the staggering performance gap between US and China equities.
