Today, investors in various video game stocks are seeing a lot of red this morning. Shares of popular Chinese video game stocks including Bilibili (NASDAQ:BILI), Huya (NYSE:HUYA) and NetEase (NASDAQ:NTES) are all down between 2% and 6% at the time of writing.
What’s important to differentiate here is the fact that each of these stocks is based out of China. Chinese stocks in general have been hit very hard in recent months. A flurry of regulatory oversight for key technology companies has resulted in a massive market capitalization hit for this growth sector in the fastest-growing large economy in the world. The Golden Dragon China ETF (NASDAQ:PGJ) represents 98 of China’s fastest-growing tech companies. This index is down nearly 50% from its peak just a few months ago.
Indeed, a multitude of drivers is responsible for this move. Chinese regulators initially clamped down on antimonopolostic practices from juggernauts such as Alibaba (NASDAQ:BABA). A $2.8 billion fine and a scuttled initial public offering (IPO) later, Alibaba stock has returned to March 2020 lows, actually falling back into territory not seen since 2017. These regulatory crackdowns spread to restricting public offerings in foreign markets and turning a $100-billion-plus, flourishing sector into a non-profit.
However, today, investors in Chinese video game stocks have received some pretty terrible news. Let’s dive into what was announced.
Video Game Stocks on the Decline on Regulatory Crackdown
Previous reports that Chinese media called video games “spiritual opium” sparked a massive selloff in video game stocks earlier this month. Given the fact that many video game producers announced self-imposed curbs, many investors hoped a crackdown wouldn’t materialize. However, those were some pretty strong words.
Today, investors got the news they feared. Chinese regulators announced a limit on video game play for minors to three hours per week.
That’s right, three hours — a week. Not per day.
Given the massive gaming demand among Chinese youth, these curbs seem extremely aggressive. However, Chinese regulators view these measures as necessary to protect society from the evils of video games. For investors considering video game stocks, domestic plays may be seen as a better bet, at least in the short-term.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines