Education stocks in China fall due to regulatory issues. All Chinese stocks pay the price.

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Asking questions is a central part of the education process. But it only took one question for Chinese regulators to crush the shares of companies like

NLP Education

and new

Oriental education and technology.

It also leaves American investors with questions of their own, including whether it is even safe to invest in Chinese companies listed in the United States.

What is the question? The Chinese government could ask for-profit educational companies to become non-profit organizations. It’s not good. Investors can put up with a lack of profits for start-ups. A lack of long-term benefits, however, is problematic.

The fallout is significant and widespread. Stock in

NLP Education

(ticker: TAL) is down 54% in pre-market trading.

New oriental education and technology

The share (EDU) is down 48%. Actions of

Gaotu Techedu

(GOTU) fell by 59% and the shares of

17 Education and Technology

(YQ) is down almost 40%. The losses are enormous.

S&P 500

and

Dow Jones Industrial Average

futures, for comparison, are both up on Friday morning.

Another example of China’s regulatory apparatus upsetting foreign investors is Friday’s stock market massacre.

Didi Global

Shares (DIDI) fell to $ 9.19, from a high of $ 18.01 after the IPO hit on June 30, after Chinese officials pulled the rideshare app from stores. Looking a little deeper, Jack Ma’s ANT Financial canceled its IPO due to run-ins with Chinese regulators.

The common theme to all of these stocks is that they are listed in the United States. Investors now have to ask themselves whether a Chinese stock with its primary listing in the United States is safe.

Ali Baba

Shares (BABA) are down 3% in reaction to Friday’s news. Shares of Chinese electric vehicle manufacturers

NIO

(NIO),

Li Auto

(LI) and

XPeng

(XPEV) are between 2% and 3%.

JD.Com

The stock (JD) is down almost 4%.

Nicholas Colas of Datatrek pointed out in a Friday note to clients that “it is not a coincidence” the MSCI China Index has fallen 20% since February after gaining 50% from the previous year. The reward of investing in a high-growth economy has given way to the risk of foreign regulatory repression.

This episode is also a reminder to investors to read the risk factors in the files of the Securities and Exchange Commission. Reading from New Oriental: “The market price of our ADSs and / or common stocks is likely to be very volatile and subject to wide fluctuations in response to factors such as… regulatory investigation or other proceedings. governments against us.

Well said.

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