Naspers and Prosus roller coaster ride

South African investors were on the edge last week as two of the JSE’s largest constituents, Naspers and Prosus, tumbled sharply on the back of a Chinese regulatory crackdown on its mega tech companies. Tencent, a subsidiary of Naspers and Prosus was one of the tech giants caught in the storm.

 

While the Chinese government has been after the tech sector for a while now, a major trigger for the most recent sharp sell-off was the banning of all for-profit tutoring services. Fearing that harsher regulatory clampdown would creep into other sectors, investors indiscriminately sold off stocks across the tech sector.

 

While there is still a lot of uncertainty surrounding the future of the China’s regulatory landscape, most managers we engaged last week are of the view that not all regulations being instituted by the Chinese authorities are bad. Most regulations are centered around data security, competition, and tackling inequality. They feel that the increased red-tape is in the best interest of protecting data, levelling the playfield for new entrants, and making social mobility possible.

 

Most are therefore taking a cautious approach to see how things pan out. It will not be surprising to see tech stocks bouncing back sharply given what seems to be extremely cheap valuations.

Source: Iress and 27four