U.S.-Listed China Education Stocks Gain on Licensing Report

(Bloomberg) -- U.S.-listed Chinese education stocks gained in U.S. trading Monday after Dow Jones reported that Beijing plans to issue more than a dozen licenses that would allow companies to offer after-school tutoring, citing people familiar with the matter.

New Oriental Education & Technology Group Inc. advanced 3.4% and Tal Education Group jumped 5.1%, while Gaotu Techedu Inc. surged 9.8%. Under the new licensing agreement, education companies will be required to operate after-school tutoring on a nonprofit basis while being allowed to make a profit on other businesses, such as tutoring adults for professional exams, Dow Jones reported. 

“For some U.S. investors, this is a good enough signal that the crackdown spiral appears to be slowing,” said Ed Moya, senior market analyst at Oanda Corp. However, he said the short-term outlook for Chinese shares is still vulnerable given soaring energy costs and global supply-chain issues. 

The reported move by China could cap months of market volatility in the once-thriving online education sector after the government tightened regulations on the industry starting in July, when Beijing prohibited after-school tutoring outfits from making money off teaching the compulsory curriculum. New Oriental’s shares have slumped 89% this year and Tal Education’s stock has wiped out 94%.

Industry experts say the licensing move signals the nation’s education policy is “stabilizing,” which should provide a more steady environment for firms to transform their business, Jefferies analyst John Chou wrote in a note. 

Still, there are no changes to local-government regulations that after-school-tutoring business should remain not-for-profit, he added.

“From a U.S. investor perspective, the situation remains challenging,” said Michael O’Rourke, chief market strategist at JonesTrading. “Although the news appears positive, it reinforces the risk of impromptu rule changes by the Chinese government.”

The Nasdaq Golden Dragon China Index, which measures the performance of 98 firms listed in the U.S. that conduct a majority of their business in China, has gained over 10% since hitting a low in early October. It’s still down 30% this year, while the S&P 500 Index advanced 25%.

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