Technology investor Prosus and sister company Naspers fell sharply in Amsterdam and Johannesburg trading after China’s move to place restrictions on the country’s education-technology sector caused a plunge in shares in online giant Tencent.
Prosus tumbled more than 10% on Monday; Naspers was last quoted down 8.6%. The Chinese government has announced curbs including banning companies that teach school curricula from making profit, raising capital or going public. Prosus has invested heavily in the global edtech sector, spending more than US$2-billion on online learning and employee training platforms last month in Europe.
Prosus holds parent Naspers’s 29% stake in Tencent. The Cape Town-based company made an initial investment in the Chinese game maker in 2001 and in 2019 spun-off most of its Internet assets into Prosus and listed it on the Euronext exchange. Prosus and Naspers have accelerated their investments into the edtech space, with the biggest moves in the US, India and Europe, rather than in China.
“The idea that authorities would wipe out the listed private education sector, with the stroke of a pen, is very unnerving,” said Gary Booysen, a portfolio manager at Rand Swiss in Johannesburg. “Many investors, who were attracted by the cheap valuations and the exciting prospects of generating profits from a large, rapidly urbanising population, are nursing hangovers this morning. I’m sure many are questioning Chinese stock markets as a viable investment destination.”
China has prohibited overseas investment in companies that teach school subjects, according to a notice released by the State Council. That will make it difficult for Prosus to expand any of its edtech ambitions in the Asian country. Spokespeople for Naspers and Prosus said they were preparing a comment on the latest developments.
In a further sign of China’s widening crackdown on the tech space, American Depositary Receipts for online music platform Tencent Music Entertainment Group plunged 19% in US pre-market trading after Chinese regulators ordered the company to give up exclusive streaming rights and pay a fine.
“Both Naspers and Prosus have been weak year-to-date, and as long as the regulatory risk remains front of mind, the stocks could remain under selling pressure,” said Lester Davids, a strategist at Unum Capital. — Reported by Loni Prinsloo and Adelaide Changole, (c) 2021 Bloomberg LP