Market players were unnerved by the severity of the regulatory squeeze on China’s after-school-tutoring sector unveiled by Beijing on July 23, but the collapse of those firms’ stock prices in the months leading up to that announcement make it clear investors were anticipating a considerable body blow or two.
The fact that a clampdown was looming for the online education sector was “actually well telegraphed,” said Jason Hsu, founder, chairman and CIO of China-focused Rayliant Global Advisors, in an interview, noting that President Xi Jinping himself explicitly cited cram schools as an issue plaguing Chinese households as far back as 2018.
High-profile after-school-tutoring firms listed on the New York Stock Exchange, such as Gaotu Techedu Inc., TAL Education Group and New Oriental Education & Technology Group Inc., saw their share prices tumble in the months leading up to the regulatory drama in late July.
Between highs reached at the start of 2021 through the July 22 eve of the sector’s drastic restructuring, Gaotu Techedu’s stock price plunged 93%; TAL’s plummeted 77% and New Oriental Education & Technology’s dropped 67%.
Even so, the unanticipated harshness of the latest strictures — requiring those companies to transform themselves into non-profit institutions, while forbidding them from raising public funds or taking foreign money — set off further sharp declines of 65% to 71% over the past two weeks for the companies.
Another sign that the “death sentence” for China’s for-profit education sector — as Mr. Hsu described it in a July 27 note — was highly unanticipated: the virtual honor roll of institutional investors buying those companies’ shares over the past year.
According to filings with the U.S. Securities and Exchange Commission, that list includes Singapore sovereign wealth fund GIC Private Ltd., which acquired just under 70 million shares of New Oriental Education & Technology Group in May; Hillhouse Capital Advisors Ltd., which acquired 8.9 million shares of TAL Education Group in December 2020; and Goldman Sachs Group Inc., which acquired 9.4 million shares of Gaotu Techedu in March 2021.
Spokesmen for GIC, Hillhouse and Goldman Sachs couldn’t immediately be reached for comment.