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Zhang Shidong

Deb Price

After a nail-biting start to the week, the Shanghai Composite Index ended up 0.9 per cent, and the Hang Seng Index rose 0.6 per cent.
You'll find all the day's action below.
Please send any questions you'd like answered about the markets to deb.price@scmp.com . We'd also like to hear about your recent hot -- or not -- trade.
-- Zhang Shidong and Deb Price


Stocks Blog:  Shanghai, Hong Kong benchmarks climb

The bull sculpture at Exchange Square in Central. Photo: David Wong


Hong Kong set to lose IPO crown to Nasdaq, thanks to ride-hailing app Lyft

Business

Markets

Pedestrians pass in front of the Nasdaq MarketSite in the Times Square neighbourhood of New York on March 15, 2019. Photo: Bloomberg

JPG for ONLINE

The Lyft  Driver Hub is seen in Los Angeles, California, U.S., March 20, 2019. REUTERS/Lucy Nicholson

(FILES) This file picture taken on September 4, 2018 shows a logo of Didi Chuxing in Hangzhou in China's eastern Zhejiang province. - China has ordered the suspension of carpool services offered by ride-hailing firms until tighter safety measures are implemented, seeking to ease fears after two users of sector leader Didi Chuxing's Hitch service were murdered. (Photo by STR / AFP) / China OUT

Cathay shares lose altitude over offer to buy Hong Express
Traders seek haven in consumer, health-care stocks amid weak economic data


Investors punish Evergrande for increased debt, zero dividend


Stocks

Live

Here's what we are watching this morning:
Overnight markets/ What futures foretell
-- Overnight in US markets, S&P 500 and Nasdaq were both up 0.7, and the Dow Jones Industrial Average rose 0.6 per cent.
-- Hong Kong futures rose 0.1 per cent higher, while the China A50 futures were 0.6 higher
IPO debuts: Pipeline Engineering Holdings and IntelliCentrics Global Holdings to start trading in Hong KongEconomic statistics/Central Bank action: February data on China’s industrial profits due today; March purchasing managers’ index of manufacturing and service industries due over the weekend.Corporate events: earnings, meetings, news conferences
-- Credit Suisse Asian Investment Conference continues in Hong Kong
-- Citic Bank, China Evergrande Group, Fosun International and Postal Savings Bank of China posted earnings overnightLater: Air China, BYD, ZTE, Industrial and Commercial Bank of China and China Construction Bank report earnings today; Bank of China and Agricultural Bank of China report on Friday.Good reads: A look at 2018 results from China Evergrande and China Vanke. And the Post asked market observers whether the correction in Hong Kong housing prices is over.


Morning guidance 

Nasdaq is set to dethrone Hong Kong as the world’s No. 1 market for initial public offerings, thanks to Thursday’s US$2.4 billion listing of ride-hailing firm Lyft, just as the world’s biggest maker of bitcoin mining rigs, Bitmain Technologies, called off its application to list in the city on Tuesday. Read Enoch Yiu's full story here. 


Hong Kong set to lose IPO crown to Nasdaq

Chinese conglomerate Fosun International (656 HK) posted a 2 per cent increase in 2018 net profit to 13.4 billion yuan from year before, while revenue jumped 24 per cent to a record 109 billion yuan.
In a post-earnings webcast, company officials of Fosun said volatility in the Hong Kong and Chinese stock markets last year weighed on the income of its insurance and investment segments, while the strong performance of subsidiaries including Fosun Pharma and Fosun Tourism boosted overall revenue.
Officials said Fosun, which added more than 70 investments last year to its sprawling business empire, took advantage of China’s credit easing policies and other policies to support private enterprises in the second half of 2018, and steadied its total debt-to-asset ratio at 53.7 per cent, with the average cost of debt at 4.97 per cent.
The stock opened 4 per cent higher at HK$12.30.
-- Yujing Liu


Fosun International jumps on record revenue

Profits for Chinese industrial companies dropped 14 per cent from a year earlier in the January-February period, China’s statistics bureau said today.
The main drag came from the auto, oil refinery, steelmaking and chemical sectors, it said. Industrial profits increased 10.3 per cent in 2018.
The data may further weigh on Chinese stocks, as investors, including foreign traders, seem to be wary of weak economic fundamentals and have started taking profits from the world’s best-performing equity market this year.
The Shanghai Composite Index rebounded 0.5 per cent on early Wednesday trading after falling 3.5 per cent over the past two days.
-- Zhang Shidong 
 



China’s industrial profits fall, adding further pressure to stocks

Fosun International (656 HK), one of China’s most active buyers of overseas assets, will actively invest in early-stage tech projects that are related to health-care and middle-office technologies, meaning cloud computing, big data and AI, chief executive Wang Qunbin said in a post-earnings webcast.
Guo Guangchang, chairman and founder of Fosun, said the company sees more opportunities in China’s structural shift in the medical system from generic drugs to original, innovative drugs centered on cancer treatment. Shanghai Henlius Biotech, a biotech subsidiary of Fosun Pharma, applied in December to go public in Hong Kong.
The setting up of the new tech board in Shanghai is great news to Fosun, billionaire Guo said, as it will allow Fosun subsidiaries to enter the A-share market at an earlier stage. Guo said he is still optimistic about China’s economy despite the recent slowdown because the economy is complicated enough to provide opportunities.
-- Yujing Liu 


Fosun to focus on biotech investment, says new tech board is beneficial

Shares of Pipeline Engineering Holdings, a provider of industrial pipelines for gas, water and telecommunications, jumped by as much as 10.9 per cent in their Hong Kong trading debut to HK$0.61, from their initial public offer price of HK$0.55.
-- Eugene Tang


Pipeline Engineering Holdings soars in Hong Kong debut 

Shares of Cathay Pacific Airways (293 HK), Hong Kong's dominant carrier, fell after jumping by as much as 3.4 per cent, declining by 1.6 per cent to HK$13.38. The carrier confirmed making a HK$4.93 billion offer to buy the city's low-cost carrier Hong Kong Express. Cathay, which already operates the city's second airline Cathay Dragon, plans to operate Hong Kong Express as a standalone budget carrier.
Swire Pacific, the listed arm of one of Asia's biggest conglomerates and Cathay Pacific's parent, fell as much as 1.8 per cent to HK$96.80 after the carrier announced its purchase plan of Hong Kong Express.
-- Eugene Tang


Cathay shares lose altitude over offer to buy Hong Express 

Carmakers dropped in Hong Kong and China after the government announced on Tuesday evening specific details of a reduction in subsidies on electric vehicles (EV), which were harsher than what investors expected.
A gauge tracking 142 automobile stocks listed in Shanghai and Shenzhen declined by 0.9 per cent as of 11.03am. In Hong Kong, Geely Automobile, the largest carmakers by market, fell 1.6 per cent. Leading EV maker BYD plunged by 3.3 per cent ahead of earnings due to be released today.
The overall cut in subsidies, including the scaling back of central government subsidies and the complete removal of local government incentives, amounts to a staggering 67 per cent, much more than a 40 per cent to 50 per cent cut expected by investors, according to Jefferies analyst Patrick Yuan.
-- Yujing Liu 
 


Car shares skid after Beijing issues bigger-than-expected cut in EV subsidies

Investors bailed out of China Evergrande (3333), sending shares down 4 per cent to HK$25.95. 
The Chinese developer delivered higher profits, but disappointed investors with its higher debt level and no dividend.
Evergrande, chaired by billionaire Hui Ka-yan, yesterday reported its net gearing ratio, a measure of equity to debt, hit 151.9 per cent at the end of 2018, up 24 percentage points from six months earlier.
The highly leveraged developer said a year ago that it would lower the ratio to 140 per cent by the end of 2018, to 100 per cent by the end of 2019 and eventually to 70 per cent by the end of 2020.
Chief financial officer Pan Darong said on Tuesday that the company’s investments in the electric car industry led to the higher net gearing ratio.
The company also did not propose any dividend for 2018. That came after it paid only 1.13 yuan per share in dividends in August for 2016 and 2017 combined.
 
-- Pearl Liu 


Investors punish Evergrande for increased debt, zero dividend 

While China’s statistics bureau has just released data showing a decline in industrial profits this morning, Shenwan Hongyuan Group says investors should buy government bonds amid lingering economic weakness.
Yields on China’s sovereign debts will continue to fall in the second and third quarter, as the risk appetite falls amid weaker-than-expected economic data. Plus the central bank is likely to cut reserve requirement ratios or interest rates, analysts led by Meng Xiangjuan at the Shanghai-based brokerage said in a note today.
They predict the yield on the government bonds maturing in 10 years will drop to as low as 2.9 per cent this year, a level last seen in November 2016. The yield on the debts is currently trading at 3.06 per cent. Rising pork prices would not jeopardize the uptrend in bonds, as the government is likely to boost supply by selling more reserved pork and increasing exports rather than tightening monetary policies, the report said.
-- Zhang Shidong 



Buy Chinese sovereign bonds amid stagnant growth, Shenwan says

A number of Cannabis stocks in China shot up in morning trading after the National Anti-Drug Committee tightened control, saying approvals of industrial cannabis licenses should be strictly enforced.
It also stated China has never approved industrial cannabis for medicine and food additives, according to the China Securities Journal.
Most stocks shot up that already have a foothold in the emerging sector. China is the world’s largest hemp producing country. 
Shanghai Shunho New Materials Technology (2565.SHE), which holds a license to grow hemp in southwestern Yunnan province, rose by the daily limit of 10 per cent to 18.01 yuan. Jilin Zixin Pharmaceutical (2118.SHE) shot up 7.39 per cent to 10.32 yuan, Tianjin Global Magnetic Card (600800.SHA) climbed 6.46 per cent to 8.90 yuan, and Galaxy Biomedical Investment (0806.HE) was up 3.27 per cent to 6.32 yuan.
Marijuana growth and consumption is illegal in China, but hemp – also part of the cannabis family – is used for industrial purposes, such as clothing and paper.
-- Louise Moon

 


Hemp shares in China soar as Beijing tightens licensing approval 

Traders are back to feeling frisky in Hong Kong and Shanghai markets.
At the midday break, the Hang Seng Index was up 0.53 per cent, at 28,717.32, while the Shanghai Composite Index -- battered Monday and Tuesday -- was up 0.55 per cent to 3,014. Shanghai has been crossing above and below the 3,000 level, without being able to break out and not look back.
Even with the back-to-back day of losses, Shanghai is up nearly 21 per cent for the year, making it the world's best major equity performer.  The Hang Seng is up about 11 per cent for the year. 
Some car stocks have stepped on the gas. Grand Baoxin Auto Group (1293 HK) -- which operates dealerships in China and sells such brands as Rolls Royce and Ferrari -- shot up 11.91 per  cent and Chinese car-maker BAIC Motor (1958 HK) is up 5.5 per cent. 
Property sector-related stocks are also having a good day. Greenland Hong Kong Holdings (337 HK) is leading with a jump of 7.7 per cent. China Evergrande (3333 HK), however, is taking a pounding, falling 3.7 per cent on higher debt and no dividend.
-- Deb Price 


Hang Seng, Shanghai benchmarks up at midday break

Chinese biotech company Beijing InnoCare Pharma Tech prefers Hong Kong over Nasdaq in New York for its planned initial public offering, president and chief executive Jasmine Cui said on the sidelines of the Credit Suisse Asian Investment Conference.
The company, which focuses on developing treatment for cancer and autoimmune diseases, plans to kick off the listing process in June and is accepting pitches from investment banks such as Credit Suisse, Cui said. While Nasdaq remains an option, Hong Kong seems a more suitable destination for a number of reasons, she said, without offering them.
Hong Kong’s bourse operator carried out major reforms in listing rules last year to allow pre-revenue biotech companies to go public, in an effort to attract more new economy firms from China and elsewhere. Six biotech firms have listed since the April reform, but the results have been mixed. Shares of Ascletis Pharma have declined by 55 per cent from its listing price, while Innovent Biologics have soared by 106 per cent.
 
Hong Kong faces losing its IPO crown to Nasdaq. 
-- Yujing Liu
 


Biotech firm InnoCare prefers Hong Kong over Nasdaq for listing

China Life Insurance (2628.HK) was up 1 per cent to HK$20.45, ahead of reporting its release of 2018 results tomorrow.
On January 30, the insurer issued a profit warning, estimating 2018 earnings would fall by 50-to-70 per cent, due to a lack of investment income over equity losses. Its stock fell 4.5 per cent on the news.
It trades as well in Shanghai (601628:CH), where it shed 41.5 percent in 2018. China pressured insurance companies to increase their investments in securities last year, when the Shanghai Composite Index ended up as the world's worst-performing major market. In January, the government allowed firms to directly register to set up equity investment plans and private funds, rather than waiting for approval. That simplified the process of insurers buying securities, therefore increasing their investment holdings. The move was part of an aim to boost markets.
This has helped China Life rebuild confidence in the markets.
In Shanghai, its shares have shot up 33 percent this year, while in Hong Kong they are up 30 per cent.
In a poll of analysts by Bloomberg, 15 have it as a "buy," eight as a "hold" and three as a "sell."
It will hold news conferences in Hong Kong and Beijing beginning at 11 to announce the results. 
-- Louise Moon



China Life trading up ahead of releasing results Thursday

Data on slumping profits for Chinese industrial companies is prompting investors to switch to defensive plays. Consumer and pharmaceutical companies were the biggest gainers among all the industry groups of China’s CSI 300 Index, rising at least 2.7 per cent in afternoon trading. The sub-gauge tracking consumer staples companies including liquor distillers Kweichow Moutai and Wuliangye Yibin is now only less than 6 per cent shy of its record high set in January 2018.
-- Zhang Shidong
 



Traders seek haven in consumer, health-care stocks amid weak economic data

The Chinese government’s move to slash subsidies by up to 60 per cent on electric cars is likely to dent sales in the short-term in the world’s largest green car market, say analysts.
Subsidies on NEVs with a driving range of 250-300 kilometres have been reduced to 18,000 yuan (US$2,686) from 34,000 yuan. For cars with a range of between 300-400km, the subsidy has been cut by a much sharper 60 per cent to 18,000 yuan, from 45,000 yuan earlier and cars with a driving range of more than 400km, the subsidy has been cut by 50 per cent to 25,000 yuan.
A gauge tracking 142 automobile stocks listed in Shanghai and Shenzhen was last down 0.7 per cent. 
Read full story here. 
 
 


More on China slashing electric car subsidies 

Remember Monday when all that foreign money was pulled out of China?
It was a one-off, says Citic Securities, because foreigners are attracted by the ongoing efforts in China to open up its equity markets.
Monday’s record 10.8 billion yuan (US$1.61 billion) selling of mainland-traded shares in the northbound investment of the exchange links was the result of a balance of asset allocations between stocks and bonds by global fund managers amid a shake-out across the financial markets worldwide, analysts including Qin Peijing at the brokerage wrote in a note today.
Some foreign investors also opted to sell to lock in short-term profits, the note said. Chinese stocks still look appealing to overseas fund managers, as foreign holdings as a percentage of China’s total market cap were low at 3 per cent and regulators are expected to raise the foreign-ownership limit on individual stocks, it said.
-- Zhang Shidong 


Foreign investors still betting big on China, says Citic 

Chinese semiconductor companies will be hungry to list and trade on the upcoming Technology Innovation Board to be launched by the Shanghai Stock Exchange in mid-2019, says Knya Wong, head of technology research at Credit Suisse.
The board removes a generally understood 23 times price-to-earning (PE) multiple IPO pricing cap, and that will be make them more willing to list there.
China has no explicit regulation mandating the multiples that new issuers should price their IPO and get listed at. But a rule of thumb has been a “23-time maximum” implicit rule, which came out of a China Securities Regulatory Commission’s guidance issued in 2014.
“Some of these [listed semiconductor stocks] are trading on [the main board] at crazy multiple values. Since the new tech board is removing the PE ceiling, this is very good for semiconductor companies to get listed and trade there,” said Wong.
Wong said many semiconductor companies listed on China bourses are trading at high PE multiple of 60-100 times, dwarfing 10-15 times PE multiples that US semiconductor equipment makers are trading at.

--Georgina Lee
 


Semiconductor firms will be hungry to list on new Shanghai tech board, analyst says

Chinese stocks rebounded after back-back days of losses, as investors rode on defensive plays to rotate to consumer and pharmaceutical companies after official data showed a slump in profits at industrial companies.
The Shanghai Composite Index gained 0.9 per cent, or 25.62 points, to 3,022.71 at the close, with sub-gauges tracking consumer staples and healthcare stocks rising at least 2.7 per cent.
Traders were seeking safe assets as concerns mounted that the economic fundamentals may not improve as quickly as the run-up on stock prices. Right after data released by the statistics bureau in the morning showed the decline in industrial profits widened, buying rushed to companies that are less reliant on the strength of the economy. Brokerage Shenwan Hongyuan Group says the yield on China’s sovereign bonds will drop further in the following two quarters, as growth remains stagnant going forward.
Profits at Chinese industrial companies fell 14 per cent in the January-to-February period, accelerating from a 1.9 per cent drop in December, the statistics bureau said. The 21 per cent gain on the Shanghai Composite will be put to further testing after a a purchasing managers’ index is expected to come out this weekend. The gauge probably showed a contraction in manufacturing activities this month, according to the estimate by Bloomberg.
The CSI 300 consumer staples index of companies including liquor distiller Kweichow Moutai added 2.7 per cent on Wednesday, making the gauge only 5.7 per cent shy of its all-time high seen in January 2018. Kweichow Mouta added 2 per cent to 788.50 yuan and rival Wuliangye Yibin advanced 4.2 per cent to 87.98 yuan. Drugmakers also rallied, with Changchun High & New Technology Industry Group surging 7.6 per cent to 306.52 yuan and Shanghai RAAS Blood Products gaining 7.4 per cent to 9.92 yuan.
-- Zhang Shidong  


Shanghai Composite closes up after back-to-back days of losses

In Hong Kong, the Hang Seng Index added 0.6 per cent, or 161.34 points, to 28,728.25, while the Hang Seng China Enterprises Index rose 0.7 per cent.
Fosun International, one of China’s most active buyers of overseas assets, jumped 8.8 per cent to HK$12.86 after revenues jumped 24 per cent to a record high.
Cathay Pacific Airways, Hong Kong's dominant carrier, fell 2.5 per cent to HK$13.34. The carrier confirmed making a HK$4.93 billion (US$628.1 million) offer to buy the city's low-cost carrier Hong Kong Express.
China Evergrande Group, the property developer owned by billionaire Hui Ka-yan, sank 3.3 per cent to HK$26.15 on concerns the company ran up too many debts and proposed no dividend payout for 2018. Evergrande’s net gearing ratio, a measure of equity to debt, rose to 151.9 per cent by 2018, as opposed to its plan made a year ago to bring the ratio down.
-- Zhang Shidong 
