Chinese gaming stocks rally as regulatory official removal boosts confidence

Chinese gaming stocks experienced an upward surge on Wednesday, outperforming a sluggish broader market. This surge follows reports from Reuters indicating the removal of a gaming regulatory official in China, injecting newfound confidence into the sector.

Positive momentum: CSI anime comic game index gains

The CSI Anime Comic Game Index in China saw a significant gain of up to 3.1 per cent in early trading, a stark contrast to the 0.3 per cent drop witnessed in the overall market. This positive momentum underscores the impact of the regulatory official's removal on market sentiment.

Regulatory shift: Feng Shixin's removal and its significance

China reportedly removed Feng Shixin from a government body responsible for overseeing its press and publications regulator, according to five sources briefed on the matter. Feng's removal comes just days after proposed rules aimed at curbing spending on video games led to a decline in Chinese gaming stocks.

Rukim Kuang, founder of Beijing-based Lens Consulting, commented, "The removal of the official aims to release goodwill to the public and demonstrated its (China's) stance of maintaining confidence in all walks of life." Kuang also expressed expectations that the proposed gaming draft rule might not be implemented in the short term, providing a sense of reassurance to market participants.

Behind the scenes: Feng Shixin's role and departure

Feng was removed from his position as the head of the publishing unit of the Communist Party's Publicity Department last week, according to the sources. This department oversees the National Press and Publication Administration (NPPA), which regulates China's extensive video games sector. Feng's departure is seen as linked to the rules announced by the NPPA last month, causing a significant downturn in stocks within the world's largest video games sector, including industry giant Tencent.

Market impact: Tencent and NetEase rebound

The proposed measures by the NPPA aim to curb spending and the use of rewards that encourage video game playing. These measures triggered concerns that authorities were imposing strict regulations on the sector, resulting in a nearly $80 billion reduction in the market value of Tencent and NetEase Inc, China's two leading gaming companies. However, on Wednesday, shares in Tencent experienced an approximately 0.5 per cent increase, while NetEase climbed 1.5 per cent, signaling a rebound for these industry giants.

In contrast, the Hang Seng benchmark faced a decline of more than 1 per cent, highlighting the unique positive trajectory of the gaming stocks amidst broader market challenges.

(With Reuters inputs.)