In the wake of painful losses on education-related holdings and technology shares over the past year, the broader market is already on heightened alert for the next social policy-related pronouncement from Beijing that could portend investment losses.
By way of example, on Aug. 3, a story in China's semi-official Economic Information Daily referring to online games played by hundreds of millions of young Chinese as "spiritual opium" prompted a sharp sell-off of gaming company stocks.
Market leader Tencent Holdings Ltd., Shenzhen, saw its Hong Kong-listed shares tumble more than 10% intraday before closing 6.5% down.
After hopeful signs of more regulatory clarity last week, that article on curtailing video games "reignited fears and weighed on not only online gaming stocks but also online video stocks," noted Brendan Ahern, chief investment officer of New York-based KraneShares ETFs, which is managed by Krane Funds Advisors LLC.
The resulting sharp price declines for Tencent and other big gaming stocks show a "shoot first and ask questions later" mentality among investors now, said Mr. Ahern.
Chinese officials, meanwhile, have reached out to market players both at home and abroad to calm the concerns raised by their July 23 announcement.
In a recent conference call, Andy Rothman, investment strategist with San Francisco-based Matthews International Capital Management LLC, noted that on a hastily arranged call with Chinese brokerage firms July 29, a top Chinese market regulator went out of his way to stress that recent moves weren't designed to restrict foreign capital or decouple China from global markets — a sign that the regulators realize "they really didn't get this right."
"Horrible communication about a lot of these regulatory issues … has unsettled investors," a challenge when China's fast-paced economic growth has left regulators forever playing catch-up, Mr. Rothman noted. Adding to the potential for misunderstandings is the speed with which the Chinese Communist Party, as a one-party regime, is able to act, he said.
Matthews Asia had $31.9 billion in global AUM as of June 30.
At the end of the day, said J.P. Morgan's Mr. Hui, the authorities in Beijing have to work harder at communicating — and overseas investors have to work harder at understanding — the country's policy direction. Both sides need to up their games, he said.
Meanwhile, the initial fears regarding the import of Beijing's July 23 surprise have calmed somewhat, analysts say.
"When the news first broke, there was clearly a lot of confusion, a lot of worries at a very high level but after a week and a half of digesting the news a lot of investors are thinking more rationally, both in terms of the valuations (and) where things are going," Mr. Hui said.