The recent government crackdown on China’s after-school education sector is not only wiping out ten-figure fortunes of some ultra-wealthy founders — it’s also costing some of the world’s largest investment banks and money management firms billions of dollars.
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Starting on Friday and continuing on Monday, shares of Gaotu Techedu, New Oriental Education & Tech Group and Tal Education — a trio of NYSE listed Chinese tutoring firms — crashed. On Friday, a report that the government was going to crack down on the for-profit education firms sent shares careening — Gaotu Techedu shares plummeted 98%. Then over the weekend, the Chinese government announced sweeping reforms to the sector, mandating that the firms become non-profits and that they no longer raise money from foreign investors.
Shares of Gaotu, New Oriental and Tal Education dropped 29%, 34% and 27% respectively on Monday, and the companies have lost 75%, 67% and 76% of their market value over the past week. Among those hit the most are American investment banks like Goldman Sachs, which as of the most recent SEC filings in February, owns nearly 19% of Gaotu, and Morgan Stanley, which owns a 6% stake in Gaotu and 14% stake in Tal.
Because foreign companies listed in the U.S. only have to reveal their shareholders once a year, it’s possible that these investment banks have changed their stakes since the Chinese firms filed their 2020 reports to the Securities and Exchange Commission. Of the six major non-Chinese institutional shareholders of Gaotu and Tal, Scottish money manager Baillie Gifford declined to comment, while Goldman Sachs, Morgan Stanley, UBS, Credit Suisse and Nomura did not immediately return a request for comment.
After-school tutoring was once a high-flying industry in China, spurred on by the growing demand for its virtual offerings during the Covid pandemic—and intense competition among millions of the country’s students to gain entrance into China’s top universities. Between March 2020 and March 2021, shares of Gaotu rose 155% to a market cap of roughly $30 billion, while New Oriental and Tal’s shares were up 39% and 38% respectively.
Now China is reforming the industry in an attempt to address the cost of child rearing and ameliorate excessive pressure on its students. But the underlying issue — fierce competition for spots at elite universities — remains. According to the country’s Ministry of Education, a record 10.78 million students were expected to take the national college entrance exam in 2021. However, only six Chinese universities made it to the top 100 of the Times Higher Education’s world university rankings.
A spot at one of these top institutions — Tsinghua University, Peking University, Fudan University, University of Science and Technology, Zhejiang University and Shanghai Jiao Tong University — is highly coveted, but the six universities have a combined undergraduate population of less than 100,000 students. China’s large student population and highly competitive education landscape drove the initial rise of the private education industry, but its investors now face a murky future.
Shares of the Chinese tutoring companies have been declining since early 2021. Gaotu’s second biggest shareholder, Goldman Sachs, which owns about a 19% stake per the February SEC filing. At its peak last October, Gaotu traded at nearly $115 per share, valuing Goldman’s stake at over $3.6 billion. Based on its Monday closing price of $2.50, the same Gaotu stake is now worth less than $80 million.
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Other investors also suffered heavy losses. Japanese financial services group Nomura, which owns a 6% stake in Gaotu, has seen the value of its shares drop $1.2 billion from its peak, while Swiss investment bank Credit-Suisse, which owns 5% of Gaotu, has seen the value of its investments decline by $970 million since its high. (It’s possible that all of these banks trimmed their shareholdings after the February filing with the SEC.)
Morgan Stanley, with major stakes in two Chinese education firms, is possibly the biggest loser outside of the Middle Kingdom. Its 6% stake of Gaotu was worth more than $1.1 billion at its peak, while its 14% stake in Tal Education was once worth nearly $2.7 billion. Those two stakes have lost $3.7 billion of their value collectively based on Monday’s closing prices. Morgan Stanley’s stake in Tal was as of March 31.
Other big losers include another Swiss investment bank UBS Group, whose UBS Asset Management owned 9% of Tal. Those shares have lost $1.6 billion of their value since Tal shares topped $90 per share this past February; the firm is now trading at $4.40. Scottish investment manager Baillie Gifford, which owns 6% of Tal, has seen the value of its investment drop nearly $1.2 billion over the course of the stock crash. New Oriental Education, whose stock hopped over $19.50 per share in February, is now trading at $1.94, though it no longer has any major foreign investors. New York investment firm Davis Advisors used to own a 6% stake in the Chinese company, but it fell below the 5% ownership reporting threshold on New Oriental’s 2020 annual report.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
