China stock market

Detention of Huawei’s Sabrina Meng Wanzhou casts shadow on China, Hong Kong stocks

  • HSBC Holdings declines by 1.9 per cent in Hong Kong after becoming associated with Huawei but not under investigation itself
  • Pharmaceuticals sell-off continues over new government drug procurement plan
PUBLISHED : Friday, 07 December, 2018, 10:56am
UPDATED : Tuesday, 11 December, 2018, 9:25am

Stocks listed in mainland China and Hong Kong on Friday barely recovered from a sell-off sparked a day earlier by the detention in Canada of the chief financial officer of Huawei Technologies, as traders reassessed the outlook for US-China trade negotiations in the aftermath of the episode.

On the mainland, the Shanghai Composite Index swung between gains and losses for most of the trading hours on Friday before closing 0.03 per cent higher at 2,605.89. In Hong Kong, the Hang Seng Index slipped by 0.4 per cent to 26,063.76.

On Thursday, both gauges slumped by at least 1.7 per cent after Canada said it had detained Huawei CFO Sabrina Meng Wanzhou, daughter of the founder of the Chinese telecom juggernaut, at the request of the US government.

Trading was light on Friday, as traders scrambled to parse which way the 90-day trade talks between the United States and China – two of the world’s largest economies – would head. Trading values on the Shanghai Exchange fell beneath 100 billion yuan (US$14.5 billion) for the first time in three months to 97.7 billion yuan.

“The timing is very sensitive. Both countries’ leaders were at dinner when she was put in custody, which puts uncertainty on both countries’ trade war negotiations,” said Louis Tse Ming-kwong, managing director of Hong Kong brokerage VC Asset Management, referring to Donald Trump and Xi Jinping.

“On top of that, there is the reversal of the bond yield in the US. All of this is putting pressure on global markets and causing a sell-off.”

Huawei, the world’s seventh-largest information technology company by revenue, is under investigation by US prosecutors over whether it breached banking laws to evade sanctions against Iran.

HSBC Holdings was in the spotlight on Friday, becoming the latest company to be associated with the developments at Huawei. The bank’s stock slid by 1.9 per cent to HK$63.70 in Hong Kong. A monitor assigned by the US government to the bank told federal prosecutors about suspicious transactions linking Huawei with Iran, according to Bloomberg News, which cited a person familiar with the matter. The lender is itself not under investigation in the matter, according to Bloomberg and Reuters. VC Asset Management’s Tse said the bank’s price would stay stable, suffering minimal impact.

Pharmaceutical stocks continued to perform poorly on concerns a pilot government procurement process, which has slashed prices of some generic drugs by about 60 per cent, will be expanded nationwide. The rout showed no signs of abating, as traders continued to pull out of the industry on concerns that more companies will need to cut prices to win tenders under the new procurement process, a pilot programme conducted in 11 cities.

Hainan Poly Pharm and Furen Group Pharmaceutical tumbled by the 10 per cent daily limit on the mainland. Sinopharm Group retreated by 4.5 per cent to HK$35 in Hong Kong.

“The low price will not only be implemented in the 11 cities – other provinces are likely to follow suit on the low pricing and procure from the tender winner,” said Cyrus Ng, an analyst at Jefferies.

News that China had given major phone operators the go-ahead to start testing fifth-generation wireless (5G) networks helped to ease selling at Huawei’s suppliers. Sunwoda Electronics dropped by 0.4 per cent to 9.19 yuan in Shenzhen after tumbling by 3.1 per cent on Thursday, and Zhejiang Crystal-Optech climbed by 0.7 per cent to 10.16 yuan. Chinasoft International slipped by 0.2 per cent to HK$4.06, after a 12 per cent tumble during Thursday’s session.