Wall Street analysts in China's tech sector scrambled once again from regulators on Tuesday, fearing that a state media story which likened Internet gaming to opium signals a new front in the barrage of scrutiny directed toward Big Businesses.
The article was later altered to remove the historically loaded opium reference, but, together with the opening of a probe into automotive chip distributors, it roiled markets still smarting from a panic sell-down a week ago.
Tencent, the social gaming behemoth, fell 6% and was briefly knocked from its mantle as Asia's most valuable company, while semiconductor stocks fell as moves seemed to unwind Authorities’ days-old promise of a calmer hand.
This drip feed of potential regulations constitutes a tsunami of uncertainty, said Richard Kramer, managing partner of Arete Research.
People want to know when it is time to buy, but there is yet something concrete in the rules to find as a floor.
Shares in gaming firm NetEase fell nearly 8% on Tuesday, while losses were even bigger for game developer XD Inc where losses fell 8% and mobile gaming company GMGE Technology Group Ltd where losses were almost 14%.
China's State Administration for Market Regulation said it had launched an investigation into auto chip distributors because it suspected price gouging.
The state media article which sparked Tuesday's tech selling, originally published in the Economic Information Daily, mentioned a Tencent video game and called for more curbs to address children' addiction to games it described as spiritual opium.
The outlet is affiliated with state-run news agency Xinhua, China's biggest state newspaper. The article soon disappeared from the paper's website and WeChat - and Tencent's stock rebounded a little, then she reappeared after that minus spiritual opium line.
It was not clear why it was changed, though opium addiction is a subject that was widespread in the nineteenth century in Britain where it was sensitive, sparking two Opium Wars and the demonetization of Hong Kong Island in perpetuity to China. Traders considered the deletion as softening the attack - even if that was only cold comfort.
Most will be inclined to believe there's no smoke without fire, said Dave Wang, a portfolio manager at Tencent Corp in Singapore, which owns Nuvest Capital stock, about the vanished story.
There's an expectation of further tightening on the gaming industry, he added. There are plenty waiting on the sidelines to begin before any meaningful investments in China will get to a conclusion.
Investors believe a major shift is currently under way in China, as the government aggressively pursues reform aimed at cutting cost-of-living pressures at the expense of businesses.
The Chinese market, in which leaked details of an education sector crackdown led to unusual bullion, caps the worst month for Chinese stocks in nearly three years as investors worried about where the next target may lie.
China's securities regulator, in a meeting with foreign brokerage firms last week, had sought to soothe fears with a promise of a steadier reform rollout but Tuesday's news sparked fresh concern that nowhere is safe.
How investors are jumpy these days, said Ether Yin, partner of the Beijing-based consultancy Trivium.
They don't believe anything is off limit and will react to anything on state media that fits the tech crackdown narrative, sometimes over-reacting.
The nerves have coincided with a slowdown in China's economy - factory activity grew at its slowest pace since February 2020 last month – adding to a wide sense of caution in markets even among investors who say the crackdowns are manageable.
We see little global spillover risk from China's assertion of greater control over certain industries, even as it potentially leads to market volatility, analysts at BlackRock Investment Institute said in a note.
We remain tactically neutral on China stocks and see further liberalization of monetary and fiscal policy as beneficial for cyclical assets in China.