China's Tencent woes hit European and US gaming stocks
Shares in Europe-listed gaming companies fell on Tuesday and U.S. names were tipped to open lower after a steep selloff in China's social media and video games group Tencent on fears the sector would be next in regulators' crosshairs.
LONDON: Shares in U.S. and European-listed gaming companies fell on Tuesday after a steep selloff in China's social media and video games group Tencent driven by fears the sector could be next in regulators' crosshairs.
Shares in Amsterdam-listed tech investment company Prosus, which holds a 29per cent stake in Tencent, fell as much as 7per cent, while European online video gaming stocks Ubisoft, Embracer Group and Frontier Developments fell around 4per cent. Tencent owns 9per cent of Frontier.
On Wall Street, video game stocks Activision Blizzard, Electronic Arts, Take-Two Interactive Software and Zynga fell between 3per cent and 9per cent.
The slide in European and U.S. gaming stocks followed a tumble in Tencent, down more than 10per cent at one point in Hong Kong in a decline that wiped off almost US$60 billion from its market capitalisation, after a Chinese state media outlet branded online video games "spiritual opium".
The article by an outlet affiliated with China's biggest state-run news agency Xinhua cited Tencent's "Honor of Kings", saying minors were addicted to online games. It called for more curbs on the industry.
Analysts at Citi said the news was not expected to have a major operational impact on gaming companies outside China, though the reaction showed how jittery the market was on the topic of China tech regulation.
Grace Peters, EMEA head of investment strategy at J.P. Morgan Private Bank, said: "It's that reminder of regulatory risks in a market that's at all-time highs where some people are looking to lock in profits. Hence we are seeing a small amount of contagion."
Investor fears about greater state intervention in China are running high after Beijing's recent targeting of the property, education and technology sectors.
Equita analyst Gianmarco Bonacina downgraded Prosus to "hold" from "buy", saying he saw Tencent facing increased regulatory risks. "We believe that the risk of restrictive regulation also on gaming is now more concrete", he said.
At one point on Tuesday, Tencent was briefly de-throned as Asia's most-valuable company by chipmaker Taiwan Semiconductor Manufacturing Co Ltd.
(Graphic: "Spiritual opium" video game stocks, https://graphics.reuters.com/GLOBAL-MARKETS/GAMES/lgvdwmgkrpo/chart.png)
(Reporting by Joice Alves, Danilo Masoni and Sujata Rao; Editing by Jane Merriman and David Holmes)