(Bloomberg) — Trading in Chinese education stocks listed in the U.S. started to show signs of a reprieve on Tuesday after a sharp two-day selloff wiped out billions in market value from the companies.
Shares of TAL Education Group and New Oriental Education & Technology Group — down nearly $20 billion in value in the past two trading sessions — each gained more than 10% in early trading. Other companies, including Meten EdtechX Education Group Ltd., Gaotu Techedu Inc. and China Online Education Group were also higher as of 9:40 a.m. in New York.
The rebound follows the worst two-day selloff in U.S.-listed companies in over a decade as regulators in Beijing unleashed sweeping policy changes on the technology, online education and property management sectors. Market across China slumped on Tuesday as rumors circulated that U.S. funds were dumping Chinese and Hong Kong assets, with analysts warning that gains may be short-lived.
“I think it’s kinda of a dead cat bounce,” said Matt Maley, chief market strategist for Miller Tabak + Co. “It’s way too early to be catching the falling knife,” he added.
As part of the latest crackdown, regulators banned foreign firms from acquiring or holding shares in school curriculum tutoring institutions, or using a variable interest entity (VIE) structure to do so — a VIE structure turns a Chinese company into a foreign one with shares that overseas investors can buy. Regulators added that anyone currently in violation of the new policy will need to rectify the situation.
“Under the new rules, the legitimacy of the listing status of certain players currently using the VIE structure, notably New Oriental and TAL Education, may be challenged,” according to CCB International Securities analyst Anita Chu.
Still Risky
Despite the rebound in education names on Tuesday, not everyone’s convinced the broader selloff in Chinese shares has abated.
“I expect the selloff in listed mainland companies in Hong Kong and the U.S. to continue for some time yet until we reach a level that international investors feel the now much-increased China regulatory risk is balanced by attractive enough valuations,”said Jeffrey Halley, senior market analyst at Oanda.
The Nasdaq Golden Dragon China Index — which tracks 98 of China’s biggest firms listed in the U.S. — fell for a fourth straight day as tech-giants including Alibaba Group Holding Ltd., JD.com Inc., and Baidu Inc. all declined by at least 2%. Stocks on the gauge have combined to lose more than $810 billion in value since it hit a record high in February.
(Adds analyst comment in third paragraph, and updates pricing throughout.)
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