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China Tech Stocks Hit by Salvo of Criticism Over Games

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(Bloomberg) -- Chinese technology stocks slumped Monday after sustaining another round of criticism from state media over online games.

Tencent Holdings Ltd., which gets about one third of its revenue from games, dropped 3.5% in Hong Kong. NetEase Inc. and Bilibili Inc., which each earned at least 45% of revenue from mobile games last year, slid 3.9% and 7.7% respectively. The Hang Seng Tech Index dropped 2.6% to the lowest in almost three weeks.

China should tighten regulations of online games to ensure they don’t misrepresent history, state media reported after a government-controlled agency criticized the industry earlier this month. Beijing’s clampdown on the Chinese technology sector has pushed the Hang Seng Tech Index down more than 40% from its February peak.

“This industry’s future direction might change from here. Investors are pricing in a bearish scenario,” said Castor Pang, head of research at Core Pacific Yamaichi Intl HK. “If they do not allow games to alter history, this may curb creativity and then ultimately hurt the growth potential.”

The onslaught faced over gaming is also reflected in policy curbs in other parts of the technology industry as the government tightens its grip. Digital finance, monopoly practices and preferential tax arrangements have also faced increased scrutiny.

Earnings Jitters

On top of all this, investors tend to remain cautious before earnings season, said Christopher Ho, an analyst at Kgi Hong Kong Ltd. Both Tencent and Bilibili are due to announce their second-quarter earnings this week. News that large foreign funds were selling Chinese tech names have also hurt the sentiment, said Ho.

“Weaker-than-expected growth data out from China has added woes to the share prices of China big tech stocks on top of the on-going regulatory uncertainties,” said Kelvin Wong, analyst at CMC Markets (Singapore) Pte. Investors are also waiting to see what impact the policy crackdown has on revenue guidance for companies like Tencent and Meituan, he said.

On the flip side, some sovereign entities have been buying the dips in China’s tech shares in recent weeks, according to UBS Asset Management.

(Updates trading prices in the second paragraph and added UBS comment in the last paragraph. An earlier version of this story corrected name of index in third paragraph.)

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