Last Friday, when Bloomberg reported restrictions on the tutoring firms, Tal Education (NYSE:TAL) and New Oriental (NYSE:EDU) plunged. China’s continued crackdown, which began last year with blocking the Ant Financial IPO and hurting Alibaba (NYSE:BABA), is a major risk.
Despite paying a hefty fine for monopoly practices, Alibaba stock is on a downtrend. China’s unexpected ban on for-profit school tutoring companies is the latest unexpected development. Before that, the country banned bitcoin mining activities, citing its contribution to pollution. Bitcoin eased the difficulty rate for hash rate after China’s crackdown on the industry.
The China government’s deep concerns for VIEs, or variable interest entity, is a significant risk. Alibaba, JD (NASDAQ:JD), Bilibili (NASDAQ:BIBI), and Tencent are widely held investments. Western investors risk losing more capital if China decides to outlaw VIEs. Already, JD and Alibaba cross-listed in the Hong Kong exchange. That would lessen the selling pressure.
Your Takeaway
Investors have no way of predicting what China will crack down on next. It could stop at restricting the education market. Investors should not guess what they would do next. Avoiding the region would minimize political risks ahead. Investors should wait for China to signal that it is satisfied with which free capital may flow on stock markets.
