Chinese Online Gaming Companies Hit by Government Mandate - Adding to Perfect World (PWRD)

One outlier today is Perfect World (PWRD), which is down over 5%. Searching for news there appears to be a government mandate disallowing foreign investment in online gaming companies.

• China's press and copyright authorities have banned foreign investors from operating online games "in any form" in the country.

  A circular jointly released by the General Administration of Press and Publication (GAPP) and the National Copyright Administration Saturday said foreign businesses were banned from investment in China's online game operations through setting up wholly owned enterprises, joint ventures and cooperatives.

  Foreign investors were also prohibited from joining and controlling Chinese enterprises' online game operations by such indirect means as contracting relevant agreements or offering technological support.

  The rule also tightened control over domestic online gaming businesses. It stated that no organizations or individuals could run online gaming business without permits from the GAPP and online games without a prior approval from the administration would not be allowed to go online.

  "The new rule is a good beginning in approving the online games in accordance with laws and will be conducive to the regulation of online gaming businesses," said Kou Xiaowei, vice director of GAPP's technological and digital department.

  The GAPP had carried out a campaign recently to crack down on online games operating illegally and featuring unhealthy contents. As of Thursday, more than 200 online games had been investigated and 45 overseas online games run without prior approval had been shutdown.

Free trade and all... ;)

Basically the Chinese government is putting a firewall around the online gaming industry... don't want those unsavory Westerners to impact things or heck, profit someday.

Seems like an overreaction to me, so I am using the now rare opportunity to buy a stock that has pulled back to a support level. Perfect World (PWRD) fell [almost] to its 50 day moving average so I am expanding the position with a 1% allocation from cash in the $41.50s area. There is a little gap at $40 on the chart, so I'll stop out much of the position on a move below $40 as that would be a clear break below the 50 day moving average.

On a sidenote - unless I am reading this iniative wrong Netease (NTES) should take a much bigger hit since it has licensed World of Warcraft, but it is only down 2%. Hmm...

[Aug 11, 2009: Perfect World Continues to Impress in Execution]
[Jun 19, 2009: Perfect World Raises Guidance]
[Nov 10, 2008: Earnings for Perfect World Solid]
[Oct 15, 2008: Perfect World Announces Share Buyback Program]
[Aug 18, 2008: Perfect World Earnings Mostly Inline]
[May 20, 2008: Motley Fool on Chinese Gaming]

Long Perfect World; no personal position