Hong Kong stocks tumble the most in six weeks but undergo a partial recovery following a major news agency correcting its report on new Chinese regulatory policies regarding video game development.

The Hang Seng Index fell 2.3% last Thursday as Tencent Holdings, a major game development firm in China, faced a great loss, stock prices dropping by 8.5%, its closest rival NetEase falling 11%, Alibaba Group Holding slumped 5.8%, and Meituan by 4.8%. This has been the Hong Kong stock market’s largest setback since July 27, when the broad Hang Seng index fell by 4.2%

Hong Kong stocks, however, were able to undergo a momentary recovery the following day as the Hang Seng Index jumped 1.91% on Friday, Tencent regaining 2.08%, and NetEase rose by 3.14%. 

The Chinese pursuit of regulatory measures to prevent minors from playing video games turned out to be the major cause of this drop. Prior to the slump, the Chinese state media reported that authorities had summoned influential game developers and operators of online streaming platforms to discuss the implementation of the new regulations on minors. Gaming stocks tumbled as the South China Morning Post (SCMP) confirmed that the state will “suspend” approvals for the development and launch of new online games in China. 

“The regulatory policies are showing that government is imposing more control in the tech [sector], particularly online gaming,” commented Edison Pun, senior market analyst at Saxo Markets. “The Hang Seng and tech stocks are facing strong resistance, so the upside will be very limited given the current situation.”

After the market closed on Thursday, SCMP corrected the report, conveying that the regulators will “slow” the approval process for video games, not “suspend”. Fortunately, the Hang Seng Index bounced back soon after by nearly 2% on Friday. 

Kenny Tang Sing-Hing, the Chairman of the Hong Kong Institute of Financial Analysts and Professional Commentators, however, expressed his concern about the future of Hong Kong stocks after the incident: “Investors are worried whether there will be more regulations and there is a risk of this spreading to other industries. The policy disruptions is less severe than before but people are observing [the situation].”


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