Mar 29, 2021 08:41 PM

Archegos Contagion Hits Education Stocks Already Shaken by Crackdown Rumors

The education technology industry has been wearied by more than a year of restrictions on in-person learning due to the Covid-19 pandemic. Photo: VCG
The education technology industry has been wearied by more than a year of restrictions on in-person learning due to the Covid-19 pandemic. Photo: VCG

New York’s shock $20 billion share sale went off like a firecracker next to China’s jittery edtech sector, which was already the subject of persistent rumors Beijing would clamp down on its core business.

The fallout continued Monday from last week’s sudden wave of block trades by U.S. private wealth manager Archegos Capital, the family office of high profile investor Bill Hwang, which were linked to a 41.56% decline in New York-listed after-school tutoring firm GSX Techedu Inc. on Friday.

GSX Techedu was just one of China’s “big three” after-school learning firms to plunge, with NYSE-listed TAL Education Group, the largest by market cap, declining 7.44% to $56.20, while its peer New Oriental Education & Technology Group Inc. fell 11.12% to $14.23.

Shares of New Oriental continued to fall in Hong Kong on Monday as North Americans slept, dropping more than 13% over the course of the day to HK$108.80. GSX Techedu had recovered a whisker in pre-market trade.

The mass sell-off turned concerns that Beijing was preparing to mount a regulatory clampdown on education technology into a panic. The industry has been wearied by more than a year of restrictions on in-person learning due to the Covid-19 pandemic.

The contagion spread to smaller edtech players, with Nasdaq-listed 17 Education and Technology Group Inc. sliding 12.36% to $6.88 per share, NetEase Inc.’s New York Stock Exchange-listed subsidiary Youdao Inc. slumping 13.72% to $24.96, and China Online Education Group, another New York-listed enterprise commonly known as 51Talk, shrinking 2.38% to $19.66.

On Saturday, China’s Ministry of Education took the rare step of issuing a statement (link in Chinese) on its official Weibo microblog rebuffing “inaccurate information” online that the government would seek to further reduce the amount of homework and extracurricular training undertaken by school-age children, a decision that would eat into edtech firms’ core business.

That seemed to reference a report circulating online Friday which appeared to describe plans to pilot a “double reduction” policy — taken to mean a decrease in the amount of homework assigned to students by both schoolteachers and extracurricular instructors.

‘Double reduction’

The document said Beijing would impose new limits on the number of training institutions, such as freezing approvals of new out-of-school education firms targeting primary- and middle-school students; bringing the price of extracurricular services more in line with costs and market demand; and banning certain kinds of advertising, such as on online platforms.

The initiative would be piloted for one year in nine provincial-level cities — including Beijing, Shanghai and Guangzhou — as well as seven smaller cities, according to the document.

Industry insiders said the ministry’s denial had done little to ease their concerns. Several education company administrators said rumors of new regulation had been brewing since the beginning of March. One CEO of a Beijing-based firm said they received more than 10 phone calls per day from people in other parts of China worried about a clampdown.

“I feel as though the job I’ve done my entire life is about to become illegal,” the person said.

While increased regulation would deliver short-term pain to the industry’s major players, the industry reshuffle provoked by rumored efforts to restrain advertising and curb the number of training firms would likely have the greatest impact on small and midsized companies eyeing stock market listings, the person said.

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Recent moves from other state bodies hint that Beijing is looking to tighten the runaway sector. The China Federation of Internet Societies, an organization run by the country’s cyberspace administration, set up an online education commission this month to root out illicit activities like withholding refunds from customers and employing unqualified instructors.

On March 10, online rumors that education authorities in parts of Beijing and other areas planned to continue a ban on “offline training and group activities” triggered share price slides at New Oriental and TAL of more than 10%.

Restrictions on gathering during the pandemic have hit many Chinese training firms, which typically provide online and offline services including after-school tutoring, preparatory courses for standardized tests, and college application consulting.

Taken together, the moves show the government’s aim to tidy up the industry is “gradually becoming clear,” said the head of an extracurricular training school in Beijing’s Haidian district.

The abovementioned Beijing-based CEO said widespread pessimism had caused some smaller players to exit the sector beginning last month.

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Friday’s share collapse took hold after the stock of American media group ViacomCBS Inc. started to tumble on Tuesday. Archegos, a private investment firm that manages the wealth of Hwang, a former disciple of Julian Robertson’s legendary hedge fund Tiger Management Corp., had large exposure to ViacomCBS.

The frantic offloads included shares of other Chinese tech firms, including Tencent Holdings Ltd.’s music arm, e-commerce platform operator Vipshop Holdings Ltd. and search giant Baidu Inc.

Traders worldwide are bracing for further volatility at the much-anticipated Monday opening of the U.S. stock markets, with the likelihood of further block trades potentially adding to traditional end-of-quarter unpredictability that could propel sharper swings on high-flying stocks.

Bloomberg contributed reporting.

Contact reporter Matthew Walsh ( and editor Flynn Murphy (

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