Futu's Mao Junhao: NetEase's Dual Tracks: Capital Return and the Pragmatic Shift in Gaming Strategy

Recently, NetEase (09999) triggered the “Trading Focus Shift” clause due to trading volume in Hong Kong stocks, transitioning from a secondary listing to a dual primary listing, becoming the first case under this rule. This event is not only a major turning point in NetEase’s capital structure but also reflects the profound changes in the global capital markets for Chinese concept stocks. What appears to be a passive rule trigger actually aligns with its core business strategy adjustments, jointly outlining NetEase’s comprehensive and pragmatic reshaping of its capital deployment and globalization path amid the current macro environment.

The “return to Hong Kong” at the capital level is the most prominent signal of this transformation. The change in NetEase’s listing status signifies a substantial shift of its pricing power from Wall Street to the Asian market. Once included in the “Hong Kong Stock Connect,” it will directly connect to the vast mainland investor base, greatly enhancing stock liquidity and valuation re-estimation potential. This not only consolidates Hong Kong’s strategic position as the core offshore market for Chinese concept stocks but also indicates that Asian capital’s influence in the global tech stock valuation system is steadily increasing. However, dual primary listing also entails stricter dual compliance regulations, raising higher requirements for corporate governance and information disclosure.

Meanwhile, in its core gaming business, NetEase is experiencing a strategic shift from blindly pursuing geographic expansion to focusing on building core capabilities. In recent years, giants like Tencent (00700) and others have shut down or scaled back some of their AAA game studios established in Europe and America. This “retreat from overseas” is not a failure of globalization strategy but a rational “amputation” based on cost-effectiveness and industry norms. Previously, Chinese game developers attempted to leverage their “cash ability” to poach talent and rapidly build teams overseas to take shortcuts in the AAA game field. However, practice has shown that success in AAA games is rooted in long-term technical accumulation, mature industrial pipelines, and deep cultural integration—hidden costs far beyond capital’s simple coverage. Under the dual pressures of massive cross-cultural management friction and soaring global game development costs, “cost reduction and efficiency enhancement” became an inevitable choice. Shutting down studios that cannot generate short-term commercial value is a rational strategic correction.

More importantly, this adjustment is not a retreat from globalization but a fundamental reset of growth logic. The global phenomenon products like “Genshin Impact” and “Black Myth: Wukong,” created by domestic teams, convincingly demonstrate that “Chinese original” content can also win worldwide recognition. NetEase’s strategic contraction is aimed at reallocating resources to its more efficient and culturally rooted domestic R&D system, shifting from the past asset-heavy “building ships and going overseas” approach to a more flexible, capital-efficient “borrowing ships to go overseas” model—combining investments, IP collaborations, and high-quality local content exports to build a more diversified and resilient global revenue structure.

Overall, these two major shifts point toward a more pragmatic and focused new stage of development. On the capital side, returning to the Hong Kong main board aims to better embrace domestic investors and realize value re-discovery; on the business side, streamlining overseas deployment is to concentrate resources on the most certain high-quality game development and long-term operations. This profound strategic adjustment not only demonstrates the clarity and resolve of NetEase’s management but also indicates that top Chinese tech companies in the second half of globalization will rely more on core internal capabilities and stable capital structures to achieve healthier and sustainable long-term growth.

Regarding stock price trends, recent declines along with other tech stocks have brought the price to around HKD 175, seemingly forming a short-term bottom. This level also coincides with the top in November 2023, turning resistance into support. If investors believe NetEase’s “return” can ultimately boost its valuation, they might consider buying at the 10-day moving average of HKD 180, with a mid-term target of HKD 247, and set a stop-loss at HKD 152 if it falls below the 200-week moving average.

(Source: Securities Times, Hong Kong Stock Research Society, CICC, Finance Web Tech, Zhitong Finance, Game News, Foreign Capital Insights, AASTOCKS)

The author is a licensed person under the Securities and Futures Commission, and neither they nor their affiliates hold any financial interests in the aforementioned issuers.

Analyst Profile: Graduated from Nottingham Trent University in the UK with a Master’s in Finance. Currently a senior analyst at Futu, with over 12 years of experience in finance and investment, specializing in Hong Kong and U.S. new economy sectors. Main style is conservative with a tendency toward cautious breakthroughs.