East Buy Holdings (HK: 01797) (OTCPK: KLTHF) shares are up 10% in Hong Kong today. The background here is that the authorities, a couple of years back, changed the rules in China's online education market. This rather impacted (we can use grosser phrases if we like) upon the plans of many of the players in that market. There were a number of online education providers quoted on NASDAQ for example, all of whom suffered significant share price declines.
It's possible to think that the education market changes were a great idea - the Chinese authorities essentially said that the private sector could not, should not, replicate what the state education system did. But can and should work and strive to fill in those gaps where the state did not occupy the leading position. So, leave the market in teaching school kids, but vocational training would be a great idea. And so on - the prescription was don't repeat what is being done, do what isn't already being done. It's also possible to disagree but then we do have to work within whatever the rules are, that's how markets work. Spotting opportunities that we're actually allowed to take.
The difficulty for the providing companies wasn't the change - markets are malleable after all. Rather, it was the speed with which the new rules were promulgated. Which means that it's necessary to wait a bit and see who adapts best to the new market for educational services.
East Buy Holdings share price from Hong Kong Stock Exchange
East Buy is: “East Buy Holding Ltd, formerly Koolearn Technology Holding Ltd, is a China-based company mainly engaged in the provision of online education courses.” So, one of those hit by the change in the rules. But equally obviously one who, if they can adapt to the rules changes faster than the others in the marketplace, can benefit from those rule changes.
This being something we need to realise. Sure, everyone has to play by whatever the rules are in their particular marketplace. But capitalism, market operators, are adaptable as to how to work within those rules. In fact, free market capitalism is the one system that explores what can be done profitably within the one set of rules faster than any other system. What this means is that when the rules change we need to be looking for those who adapt to the new market realities the best.
Which is what we seem to have in East Buy Holdings. The people who have adapted, are adapting, best to the changes in China's online education market.
