What’s left after the brutal birds shooting in stock market?

July 28, 2021 11:22
Photo: Reuters

A tricky question: There are seven birds on a tree. A hunter fired a shot and one fell on the ground. How many birds are left on the tree?

Unfortunately it is not a math question as you might have answered in the childhood. Those who figure out the answer would have been able to escape the Chinese stocks nightmare this week.

A sharp selloff that saw Hang Seng Index fell to around 25,000 yesterday on a record turnover of HK$360 billion was said to have originated from a regulatory crackdown on after-school tutoring services.

A document titled “Opinions on Further Alleviating the Burden of Homework and After-School Tutoring for Students in Compulsory Education” released over the weekend triggered a sell-off of Chinese educational stocks such as TAL Education and New Oriental Education and wiped out nearly 80 per cent of their market capitalization in four trading days.

It is believed that Beijing aims to ease the financial burden of Chinese parents paying for hefty extra-curricular activities of their kids.

The sudden change destroyed the business model of these schools, leading not only to the sell-off of the sector but also raising investors’ fear of further regulatory risks among the Chinese stocks.

That was where the bird on the tree questions came in. Educational stocks which have been the new kids on the block were shot. The other emerging sectors such as internet, health and property management companies immediately felt the heat.

The Newton rule of “what goes up must come down” applies to most Chinese stocks. For a second day, Hang Seng Index fell more than 1,000 points and down more than 10 per cent in three trading days amid Beijing’s regulatory crackdown.

Represented by what is known as the ATMs (Alibaba, Tencent, Meituan), Hang Seng Technology Index, which debuted one year ago finally fell below water on the first anniversary and closed at 6,249, having surged as high as around 11,000 during the Chinese New Year.

There were few exceptions, such as the mainland chip and oil sectors which are Beijing-supported. The so-called old economy stocks, namely banks and properties, were also relatively unscathed.

Perhaps investors should have learnt the painful lesson from Ant Group and sibling Alibaba Group who grew too big and too fast. If that was not enough, one should have taken to heart the Cyberspace Administration of China’s probe into Didi days after it was listed in United States a month ago.

Now it is obvious who the big boss is. Smart business birds who want to protect their new found wealth should never go near the tree.

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EJ Insight writer