NetEase Gaming Stock Rises

Regulatory fears may have left Chinese tech stocks battered for much of 2021— but Morningstar says one stock is significantly undervalued. Chinese video gaming giant NetEase ($NTES@China) has seen a lot of volatility in recent months after several regulatory blows, including new rules curbing the number of hours children can spend playing online games to just 3 hours a week. As of Wednesday’s close, its Hong Kong-listed stock was up 2.17% for the year but still more than 25% lower than its February high. The recent regulatory changes in China limiting online gaming time for those under 18 are expected to have a “negligible impact” on NetEase’s long-term earnings, as NetEase disclosed that this age group contributed to less than 1% of its overall gross. NetEase’s operating margin is expected to increase as its core gaming business expands into more profitable overseas markets. The company currently has less than 1% market share in the gaming market outside of China. Having proved its ability to make high-quality and longstanding mobile games for the Japanese market, NetEase is well-positioned to capitalize on this massive opportunity outside China.