Naspers share price drops after China tightens online content regulations

SOUTH Africa's premier tech stocks, Naspers and Prosus, took a broadside on the Johannesburg Stock Exchange (JSE) yesterday as China’s clampdown regulations filtered down, resulting in the portfolios losing up to 7.5 percent of value in intraday trade. “It started in April and the Chinese government has given the companies more than 100 items of compliance requirements covering many aspects, antitrust, data, advertisement, pricing, and lots of things,” a legal analyst who declined to be named said yesterday.

Naspers, a global internet and entertainment group and technology investor operating in more than 120 countries and markets with longterm growth potential lost up to 7.3 percent to R2 748.01, while Prosus, a consumer internet group operating across a variety of platforms and geographies, primarily in China, India, Russia, Central and Eastern Europe, North America, Latin America and Southeast Asia, shed 7.6 percent of value to R1 279.63.

“It seems online education models have been essentially crushed and will have to alter focus,” said FNB analyst Wayne Mccurrie yesterday.

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 $2 billion (R29.67bn) on online learning and employee training platforms last month in Europe. Prosus holds parent Naspers’s 29 percent 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.

An international analyst said it seemed the government had given the companies so many instructions and clues asking them to improve their compliance system for all of those aspects,” said the lawyer, who wished to remain anonymous due to the ongoing and sensitive nature of the compliance work. “They are dealing with regulatory issues in a different way than Western governments deal. So normally, a Western government would lay out a regulatory structure in the early days of a new industry, like fintech being developed,” he said.

Analysts said the Chinese experience has been instead to say to entrepreneurs, go ahead and give this a try. And then we’ll step in there after we see how it works and decide how to regulate it. In April, China’s State Administration for Market Regulation summoned 34 companies including Tencent and told them to conduct self-inspections in order to comply with antitrust rules.

The JSE was weaker yesterday morning, with its global peers mixed as markets were under pressure amid China’s widening tech sector crackdown.

Tencent, which influences the JSE via the Naspers stable, fell more than 8 percent in intraday trade after Chinese competition authorities ordered it to stop a practice of exclusive music licensing rights, also levying a small fine, which follows similar action against other tech firms.

“The idea that authorities would wipe out the listed private education sector, with the stroke of a pen, is very unnerving. 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,” said Gary Booysen, a portfolio manager at Rand Swiss in Johannesburg.

Naspers and Prosus said they were preparing a comment on the latest developments.