• IXIC has added 1.10% in the past month, 9.92% in 6 months, and +15.45% in the YTD analysis. 
  • Chinese online education start-ups previously valued at $100 billion had their valuation reduced to $24 billion as of July 26, 2021. 
  • By June 2021, China had fallen 70% short (YTD) of its US trade target purchases. 

The NASDAQ Composite Index (IXIC) was down 1.21% on July 27, 2021, from the previous day, where it closed at $14,660.60. However, the index has added 1.10% in the past month, 9.92% in 6 months, and 15.45% in the YTD analysis. 

Investors are upbeat about the major technology stocks fueling the index, with most companies slated to release their earnings report by July 30, 2021. 

Sell-off fears

The NASDAQ Golden Dragon China Index (HXC) fell 5.54% on July 27, 2021, after the Chinese government requested education companies to offer non-profit tutoring services. This move has threatened to wipe billions in investments in private equity capital funds. Some like Tiger Global Management (TGM) and Temasek Holdings risk losing up to $100 billion.  

Global technology companies have invested in Chinese online education for years, but Xi Jinping’s new regulations will force a sell-off in the sector. 

Global Investors of Chinese online education companies

Figure 1: Global Investors of Chinese online education companies 

Due to its quick growth rate, China’s online education was expected to generate annual revenue at 491 billion yuan ($76 billion) by 2024. To help boost the rapidly declining birth rate (in China), Xi Jinping’s government stated that institutions teaching the school curriculum should not enlist publicly or have foreign ownership. Online tutoring for children under six years was also forbidden. 

Chinese online education start-ups previously valued at $100 billion by global financial institutions like JP Morgan had their valuation reduced to $24 billion as of July 26, 2021. This move against private tutoring could also extend to content manipulation in global social media companies like Facebook and Twitter, with a heavy presence in China. 

It was coming

Q1 2021 had seen the Chinese government, through the education ministry, express concern on male models and the infiltration of feminism. The government initiated the proposal to stop the feminization of male adolescents. China’s education sector required schools to reform physical education and revitalize teacher recruitment techniques.

Chinese tech giant Alibaba Group (BABA), with a market cap of $504.46 billion, ticked 2.97% lower on July 27, 2021, to close at $180.07. BABA is a heavy investor in Chinese online education and may be impacted by the government’s crackdown on private/ online tutoring. 

Blackrock was also named as a venture capitalist in Chinese online education stocks alongside Sequoia. Both BABA and Blackrock Inc. had increased their pre-market trading prospects by 2.11% and 0.13%, respectively, as of July 28, 2021.

Trade surplus

China has targeted online tutors with high American investment that could further derail the decrease of a trade surplus agreed under former President Trump. 

The agreement stated that China was to buy an additional $200 billion worth of goods and services until 2022 to match 2017 levels. By June 2021, China had decreased its purchase target by 70% (YTD). 

Technical analysis

The NASDAQ Composite Index (IXIC) formed a flag after the release of earnings data. An upward breakout may occur if the index pushes above $14,810. A rise above this level will push it towards $14,831.11.

NASDAQ Composite Index chart

The 14-day RSI shows strong buying momentum at 58.71. The index is also staying above the 9-day EMA at $14,650.96, indicating an uptrend in the short term. Failure to get above $14,810 may pull IXIC towards $14,400 and $14,138.39.