Tencent Plunges 5% Amid Crackdown on Video Games

Tencent Holdings Ltd.’s (TCEHY) share price closed down 4.87% in Hong Kong on Friday after China's education authority unveiled new proposals to limit video game releases and the amount of time that young people spend playing online.

The Ministry of Education of the People's Republic of China issued a statement on Thursday detailing how it plans to tackle the increasing number of eye problems affecting the country's youth population. In a document reported on by CNBC, policymakers blamed a "very severe" rise in short-sightedness on several potential issues, including heavy study loads, mobile phones and other electronic devices that prevent young people from getting exercise and spending time outdoors.

Those findings led the Chinese education ministry to recommend curbing approvals for new online video games, implementing an age ratings system and introducing restrictions on how much time minors are allowed to play games online.

Investors reacted to those threats, one of many made against video game makers such as Tencent this year, by offloading more of the tech giant’s shares. The Shenzhen-based company’s stock is now down about 28.5% from its January peak, according to the Financial Times.

Overreaction?

Kevin Leung, an executive director of investment strategy at Hong Kong-based Haitong International Securities, described the punishment dished out by investors in response to the Chinese education ministry’s latest announcement as a “short term reaction,” according to CNBC.

"I think the news that came out (Thursday) regarding monitoring gaming usage is similar to a number of times where gaming restrictions on youths in China came out before, so in this sense, I think it is just a short term reaction. But in the bigger picture, this is in line with China's policy of putting a stronger clamp on gaming," Leung said, adding that the trend is likely to continue for "at least" the next two quarters.

Market research company Niko Partners came to a similar conclusion, noting that the document was "not as detailed as we expect to see." At this point, analysts at Asian game-market brokerage firm claimed that “it is unclear if the policy will ultimately be restrictive or not” and that game licensing in China will likely resume as normal for the time being.

Niko Partners did warn that plans to restrict the number of new online video games represented a potentially worrying development. However, analysts at the Campbell, California-based firm also argued that these type of measures are more likely to impact “smaller game companies with only a few potential hit titles.” (See also: Why Alibaba, Tencent, Baidu Can Rise 20%.)

Earlier this month, Tencent reported a decline in net profit after China's content regulators ordered it to halt sales of video game Monster Hunter. The Financial Times reported that thousands of games have been awaiting approval for commercial launch since March. (See also: Tencent Plans US IPO of Its Spotify-Backed Music Unit.)