A recent move by Chinese regulators has stimulated interest among asset managers toward investing in Chinese online gaming. This comes after the reopening of applications for publishing online games after nearly a year of tightened regulatory restrictions.

Asia’s gaming revenues are expected to grow from US$61.1 billion in 2017 to US$200 billion in 2030, according to a UBS report. And China is playing its role. The country’s gaming revenues hit US$37.95 billion in 2018, taking a global share of 28%, according to Newzoo, a market intelligence service for games, esports and mobile.

In fact, Chinese online gaming has been a popular theme among asset managers, especially for those who track Asia or the Chinese stock market. “We overweigh the consumer discretionary sector and we want to ride on the large-scale consumer upgrading trend in Asia, which relates to sectors including gaming,” says a senior equity fund manager from a global asset manager.

Mobile gaming, in particular, is a major driver for the online gaming sector. The Chinese mobile gaming sector recorded sales of 112.2 billion yuan (US$16.71 billion) in 2017, accounting for 55.8% of the online gaming market share, according to a Chinese report.

One of the factors holding investors back from entering this sector is regulatory issues. “Last year we had some setbacks in the gaming sector in China regarding getting approvals from regulators,” says the fund manager.

In March last year, Chinese regulators stopped granting licenses that gave the legal right to publish new online games in China. This move has hurt large players in this industry including Tencent and NetEase. “Last year we did not top up on those names which suffered from the approval suspension,” says the fund manager, noting that regulatory uncertainty is among the risk factors surrounding investing in this sector.

Last Friday, the State Administration of Press, Publication, Radio, Film and Television officially announced the reopening of applications for publishing online games, a move that might buoy the sector, according to Chinese analysts.

“I would say that the Chinese government this year is doing some coordinative and supportive measures,” says the fund manager, noting that the regulators' attitude towards this sector has turned around this year.

However, large names in the Chinese gaming sector might obtain only limited benefits from the reopening of approvals, as most of the licenses so far have tended to be given to medium to small gaming companies.

In addition, gaming companies with a more comprehensive business spectrum have a higher potential when it comes to generating returns, according to the fund manager. “While the majority of their business is in gaming, they are also engaged in some other consumer-related sectors. We believe that the key competitive advantage of some of these companies is having a lot of data derived from the online gaming business. They can make use of this data in some other consumer areas,” the fund manager says.

With more than 1.2 billion active gamers spending at least one hour on average per week playing video games, the Chinese gaming sector has undoubted potential. “We remain quite constructive toward some of the names in the gaming sector. This year we may look at opportunities that arise and might top up some names,” the fund manager comments.