Chinese education stocks tumble in 'panic selling' amid broad crackdown

 Stocks slumped on the mainland and in Hong Kong, with the benchmark CSI 300 Index and the Hang Seng Index both tumbling more than 3 per cent

A selloff in Chinese private education companies sent shockwaves through the nation’s equity market on Monday, as investors scrambled to price in the growing risks from an intensifying crackdown by Beijing on its industries.

Stocks slumped on the mainland and in Hong Kong, with the benchmark CSI 300 Index and the Hang Seng Index both tumbling more than 3 per cent. Education stocks plunged in the wake of a sweeping overhaul that threatens to upend the $100 billion sector and jeopardize billions of dollars in foreign investment.

“I see panic selling in the market now as investors are pricing in a possibility that Beijing will tighten regulation on all sectors that have seen robust growth in recent years,” said Castor Pang, head of research at Core Pacific Yamaichi. “I don’t think investors can do any bottom fishing at this point. We don’t know where the bottom is.” New Oriental Education & Technology Group plunged as much as 40 per cent in Hong Kong, extending Friday’s record 41 per cent fall. It warned in a filing that the regulations will have a material adverse impact on the company. Koolearn Technology Holding tumbled as much as 35 per cent, the biggest decliner on the Hang Seng Tech Index, which fell as much as 7.1 per cent, its biggest fall ever.

China Maple Leaf Educational Systems Ltd. dropped 16 per cent. Chinese regulators on Saturday published reforms that will fundamentally alter the business model of private firms teaching the school curriculum, as Beijing aims to overhaul a sector it says has been “hijacked by capital.” The new regulations ban firms that teach school curriclums from making profits, raising capital or going public. Friday was already a bloodbath for the sector in both Hong Kong and the US, after a leaked document circulated on social media.

The “worst-case became a reality,” wrote JPMorgan Chase & Co analysts including DS Kim in a note, saying it was uncertain whether the companies could remain listed. “It’s unclear what level of restructuring the companies should undergo with a new regime and, in our view, this makes these stocks virtually un- investable.”