NetEase shares plunge on Chinese gaming crackdown: should you buy or sell?

on Aug 30, 2021
  • NetEase shares on Monday plunged nearly 4% as China increased restrictions on the gaming industry.
  • China’s regulator reduced the number of hours minors can play, in the latest crackdown.
  • So should you buy or sell NetEase shares now?

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On Monday, NetEase Inc. (HKG:09999) shares declined nearly 4% after China’s regulator announced a new set of restrictions, limiting gaming time for minors. China has been tightening restrictions on technology companies, and the gaming industry is the latest to suffer the wrath of the uncompromising regulator.

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Shares of all gaming stocks, including Bilibili Inc. (HKG:09626) and Tencent Holdings Ltd (LON:024S) also plummeted following the announcement. According to the report, users under the age of 18 years will only be able to play games between 8 p.m. and 9 p.m. local time, Fridays, weekends, and during holidays.

Should you buy or sell NetEase shares in September 2021?

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From a valuation perspective, trade at a reasonable P/E ratio of 29.98 and an attractive P/E of 18.88, making the stock attractive for value investors. Moreover, analysts expect NetEase earnings per share to grow by 16.95% next year and at an annual rate of about 12% over the next five years.

Therefore, growth investors could also find the stock compelling for the long term. However, with China’s regulator increasing gaming restrictions abruptly, current growth projections could be unrealistic. As a result, investors may opt to monitor the performance before buying the stock.

Source – TradingView

Technical overview: NetEase stock price forecast for Q3 2021

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Technically, NetEase shares seem to be trading within a sharply descending channel formation in the intraday chart. However, the stock bounced on Monday afternoon after plunging in the early morning hours to avoid crossing to oversold conditions. 

Therefore, investors looking for continued downward movement could target profits at approximately $83.71 or lower at $77.84. On the other hand, if Monday’s afternoon rebound continues, investors can target upward profits at $94.83 or higher at $100.71.

Bottom line: the case for shorting NetEase shares now

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In summary, although NetEase shares bounced back in the afternoon to trim intraday losses, the stock trades under intense downward pressure, indicating a bearish bias. Moreover, shares are yet to hit oversold conditions in the 14-day RSI, leaving room for more downward movement.

Therefore, it would be best to wait for the stock to trade at the key support levels before buying or short NetEase to profit on the downward movement.


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