Why TAL Education Group Shot 9% Skyward Today

Key Points

  • A unit of global banking conglomerate UBS divulged a 4% stake in the company.
  • TAL Education Group and its peers have struggled in the face of a government crackdown on for-profit education.
  • Regardless, China is a massive country, and its population of children is set to increase notably.

What happened

The Chinese for-profit education sector is not popular with investors at the moment. This is a key reason why a contrarian buy into the sector from a notable institutional investor drove TAL Education Group’s up by just under 9% on Friday.

So what

The buyer is UBS Asset Management (Americas), which divulged in a regulatory filing that it now holds a stake of just over 4% in TAL. As the filing is purely informational, the company did not reveal the reasons for its decision.

As a China-based education company, TAL is hardly an asset of choice among international stock investors now. Earlier this year, the Chinese government began a crackdown on the country’s for-profit education providers in a move aimed at saving costs for the nation’s parents and easing workloads. The government has taken measures such as limiting advertising and enacting stricter parameters for online learning for these companies.

Such moves make investors fear for the viability of businesses like TAL; the government is strong in China, and companies have little scope to resist its moves.

Now what

We can surmise that for the UBS unit this is a classic contrarian buy into an asset class that is currently leaving investors cold. China, of course, is a massive country, and it recently increased the number of children its people are allowed to sire (from two to three). That alone should provide more opportunities for educators, even the private ones like TAL that are the target of the government’s current crackdown.

Author: Eric Volkman, The Motley Fool