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China Education Stocks Rally Fizzles as Analysts Pan Outlook

China Education Stocks Rally Fizzles as Analysts Pan Outlook

Signs that Beijing wants to keep some private education operators afloat hasn’t changed the sector’s dire outlook for investors -- judging by the reversal of share-price moves and downbeat comments from analysts. 

While U.S.-listed Chinese education stocks gained on Monday after Dow Jones reported on plans for licenses to allow companies to offer after-school tutoring, there was little follow through Tuesday in Hong Kong and mainland markets, with most early gains evaporating.

“The situation remains the same as what everyone understands,” DS Kim, an analyst at JPMorgan Chase & Co., said in a research note. “We don’t think the sector is investable yet.” 

Kim and peers at Citigroup Inc. and Daiwa Securities Group Inc. noted that listed companies would not be among the dozen operators allowed to hold licenses and will still have to forfeit or dispose of their after-school tutoring businesses.  

“Beijing does not want to kill the entire sector,” said Jackson Wong, an asset management director at Amber Hill Capital Ltd. “But the pains remain for listed firms, as the previous rules are still in place. We are still cautious.”

China Education Stocks Rally Fizzles as Analysts Pan Outlook

New Oriental Education & Technology Group Inc., which managed to hold out the bulk of its gain in Hong Kong, did so after a report that it plans to set up an online platform to sell agricultural products. It maintained its initial jump of over 5% Tuesday afternoon.

Most other companies gave up the bulk of their gains: China Yuhua Education Corp. cut a 6% advance to 0.3%, China Education Group Holdings Ltd. went from 4.7% to 1% and China Maple Leaf Educational Systems Ltd. pared from 3.7% to be flat.  

Some stocks may recover as their business models evolve, but the outlook is uncertain and there isn’t a case to buy back into the education stocks, said Tom Masi, a portfolio manager at GW&K Investment Management. 

Jefferies analyst John Chou suggested the latest news may “provide a more steady environment for players to transform their businesses.” 

©2021 Bloomberg L.P.