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Zhang Shidong

Azar Zaidi

The Chinese stocks market is braced for another roller-coaster following overnight comments by US President Donald Trumps’ top trade negotiator, Robert Lighthizer, accusing Beijing of back-pedalling on commitments made during trade negotiations between two of the world’s biggest economies.
Trade talks will, however, continue, with a Chinese delegation in Washington on Thursday and Friday, Lighthizer said on Monday. Both sides have reasons to keep talking, even if the prospects of a short-term deal now appear distant, according to analysts. 
Stay with us to for what promises to be an eventful day in the China and Hong Kong stock markets.
– Zhang Shidong in Shanghai, Azar Zaidi in Hong Kong  


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China stock market

Stocks Blog: Consumer names lead rebound in Chinese stocks from biggest drop in three years

Business

Markets

China says Vice-Premier Liu He to visit US for trade talks this week
Shanghai Composite to test key support level


Investors are snapping up consumer stocks, which have limited exposure to overseas sales, amid signs the trade war between China and the US is flaring up again.


Hong Kong stock exchange

Stocks

Live

* Overnight markets/what futures foretell:
– Overnight in US markets, S&P 500 and Nasdaq both fell 0.5 per cent and Dow Industrials dropped 0.3 per cent.
– Hong Kong futures were 0.4 per cent higher, while the China A50 futures rebounded 1.2 per cent after tumbling 5.5 per cent on Monday
* IPO debuts: Advertising platform operator Duiba Group to start trading in Hong Kong today. The company sold 111.11 million shares at HK$6 each.
* Economic statistics/central bank action: China is due to release the latest data on its foreign reserves between 9am and 3pm. Estimated at US$3.1 trillion.
* Corporate events, earnings, meetings, news conferences: Nothing major
* Later this week: The customs office will release April data on imports and exports tomorrow and the statistics bureau will put out inflation data a day later.


Morning Guidance

Sentiment recovered a bit at the open on Tuesday after China’s major benchmarks posted their biggest declines in more than three years a day earlier. The Shanghai Composite Index rebounded 0.5 per cent after slumping 5.6 per cent, while the Shenzhen gauge added 1 per cent after plunging 7.4 per cent. Brokerages including Shenwan Hongyuan Group, China’s oldest, said Monday’s sell-off was overdone and there was still a chance China and the US would finally strike a trade deal.
– Zhang Shidong


China, Hong Kong Stocks rebound at open after Monday’s rout

The rally in Chinese stocks will probably turn into a “slow bull” that is more driven by corporate earnings, and the uptrend remains intact after Monday’s rout, China Securities Journal said in a front-page article on Tuesday. A persistent decline is unlikely, and for investors who hold cash the market carries more opportunities than risks, it said. The Journal is operated by the state-owned Xinhua News Agency.
– Zhang Shidong


Bull run in China stocks intact, state media says

Duiba Group (1753 HK), an advertising platform operator based in Hangzhou in China’s eastern Zhejiang  province, dropped 1.5 per cent to HK$5.91 on its first day of trading in Hong Kong. The company raised HK$586.6 million (US$74.8 million) from first-time stock sales.
– Zhang Shidong


Chinese advertising company Duiba falls on Hong Kong debut

“Markets hate surprises, but this is not a very surprising surprise,” said Christopher Smart, the head of Barings Investment Institute. “Trump’s last-minute tariff threats are well within the pattern of standard real-estate negotiations as one side tries to secure a little more leverage going into the final round. It would be a real surprise if this does more than delay an agreement that both sides still seem to want.
“Investors should remember that the deal is unlikely to do more than paper over deep-seated differences between Washington and Beijing over state aid, intellectual property protection and a level playing field for foreign firms in China,” Smart said. “The Chinese government may commit to making some marginal changes in these areas, but real reform will take years and require fundamental shifts in China’s business model. No matter how good a deal is agreed now, these issues will be the subject of differences for many years ahead.”
– Eugene Tang


Trump tariff threats ‘not a very surprising surprise’

Leveraged traders are pulling out of Chinese stocks to take shelter from a reversal in the trade talks between China and the US. The outstanding balance of leveraged bets on Chinese stocks dropped for a fifth straight day to 942 billion yuan (US$139.1 billion) on Monday, according to data from Beijing-based financial services company China Securities Finance Corporation.
– Zhang Shidong
 



Margin traders exiting Chinese stocks amid risk-off sentiment

Trump’s tweets hint at a greater chance of a no-deal scenario in the US-China trade negotiations, analysts at American investment bank Jefferies said in a report on Monday.
“Last week, we would have said the chance of a no deal was less than 10 per cent. Now we think it, perhaps, was never less than 30 per cent, given multiple flash points that have developed in the US-China relationship,” said Jefferies’ Hong Kong-based analysts led by Laban Yu.
The real danger now is that both China and the US may believe their negotiation positions have become stronger and may be less willing to compromise, the analysts said. While the US posted stellar first-quarter economic growth and employment numbers, China concluded its Belt and Road Initiative summit with 133 signatories – up from 72 last year – to boost its exports, they said.
– Yujing Liu


Chance of no deal increases after Trump tweets, Jefferies says

Shares in Chinese oil and gas producers are cheap and have room to catch up after their first-quarter results, released last week, showed signs of recovery of profitability, analysts at Sanford Bernstein said in a note on Tuesday.
Despite lower first-quarter oil prices year on year, PetroChina’s first-quarter oil and gas production operating earnings jumped 47 per cent year on year, while that of China Petroleum and Chemical (Sinopec) returned to profitability, they said. The improvement was thanks to lower operating costs and higher natural gas prices. 
Industry leader PetroChina’s share price has fallen 1 per cent year to date, trailing Sinopec’s 6.7 per cent rise and the Hang Seng Index’s 14 per cent gain.“[PetroChina] continues to suffer from uncertainty around pipeline reform, but at 2.5 times share price-to-cash flow multiple, the worst is priced in,” the analysts said.
 
Beijing plans to set up a national oil and gas pipeline company this year. It will acquire all long-distance trunk pipelines owned by oil and gas majors, and is aimed at breaking PetroChina’s dominance in the logistics segment, and encouraging new entrants to invest in oil and gas exploration to help boost domestic production and reduce reliance on foreign resources. Details of the reforms have not been unveiled.
– Eric Ng


Chinese oil and gas producer stocks are cheap, Sanford Bernstein says

Here’s a look at what Donald Trump has been saying about trade with China over the past year.

 



Trump’s Twitter tirades: a year of the US president on trade

Swiss investment bank UBS still maintains a base case of a negotiated trade settlement, including select US tariff rollbacks in exchange for some Chinese concessions, according to a report published on Monday.
“If this were to eventually materialise, Monday’s pullback in valuations could represent a buying opportunity,” said Mark Haefele, global chief investment officer at UBS, and Min Lan Tan, head of its Asia-Pacific investment office.
“Within our Asia portfolios, we hold our overweight on MSCI Asia excluding Japan equities, with a collar option for downside protection and remain overweight on offshore Chinese equities.”
They ascribed a 30 per cent probability to the risk case of a breakdown in trade negotiations, and said the breakdown would hit stocks in China harder than in the US.
“Renewed tariffs and other retaliatory measures could lead to a 5 per cent contraction in US earnings, which coupled with falling valuations could result in a 10 to 15 per cent decline in US equities. Chinese equities could also fall between 15 per cent and 20 per cent, while USD/CNY [exchange rate] may break above 7.0,” they said.
– Yujing Liu


Monday market decline ‘a buying opportunity’, UBS says

Chinese stocks finished the morning session higher, rebounding from their biggest decline in three years, as traders took shelter in consumer and agricultural companies. The Shanghai Composite Index rose 0.3 per cent, while the Shenzhen Composite Index climbed 1.5 per cent. Investors snapped up consumer stocks that have limited exposure to overseas sales amid signs the trade war between China and the US is flaring up again, with gauges tracking consumer discretionary and staple stocks rising more than 2 per cent.
Hunan Jinjian Cereals Industry and other agricultural companies also edged higher on bets they stand to benefit from the trade war, as US agricultural products are China’s main retaliatory target. In Hong Kong, the Hang Seng Index added 0.3 per cent.
– Zhang Shidong


China stocks end higher at break, as consumer names rise

Lunch-time read: Despite the worst quarterly results in 10 years, the Hong Kong economy is well positioned for a rebound, especially if the trade war ends soon, writes Neal Kimberley.


Better times ahead for Hong Kong's economy

Futures contracts on oil rose by as much as 0.3 per cent to US$62.41 a barrel in Asian trading on Tuesday, as the commodity defied turmoil in the global financial markets amid an escalating trade war between China and the US. News that Washington was sending an aircraft carrier strike group to the Middle East drove prices up for a third straight day.
– Zhang Shidong
 



Crude brushes aside trade war, holds onto gains

Major Chinese banks declined in an advancing market on Tuesday after Morgan Stanley downgraded the sector in a research note. Analysts at the US investment bank cited the adoption of credit policies that are not driven by market forces by China’s central bank since the second half of 2018 as a major reason. 
The note also signposted risks caused by notable financial speculation and a reverse selection process for corporate borrowers, which can put pressure on banks’ net interest margins, non-performing loans and profits.
The downgrade affected the A shares of the “Big Four” banks, Bank of China, Agriculture Bank of China, Industrial and Commercial Bank of China and China Construction Bank, which are now rated as equal weight after outperformance in 2018. It also downgraded the Hong Kong-listed H shares of Agriculture Bank of China and BOC.
ICBC, the world’s largest bank by market value, was trading 1.2 per cent lower in Shanghai at 5.65 yuan by 1.10pm. Its Hong Kong-listed shares were trading 0.5 per cent lower at HK$5.7.
 
Morgan Stanley downgraded Chongqing Rural Commercial Bank and Bank of Chongqing as well, on concerns large state-owned banks moving into SME loans will disrupt the small business loans market. Ping An Bank, on the other hand, was upgraded to overweight, while the overweight ratings for Industrial Bank and China Merchants Bank were reinforced, as these lenders are less exposed to policy risks.
– Yu Xie
 


Major banks decline after Morgan Stanley downgrade

Whether the rally in Chinese stocks will continue, or falter, rests on progress in the China-US trade negotiations, said Wang Zheng, chief investment officer at Jingxi Investment Management in Shanghai.
“The whole market was caught off guard by the news, and the expectations had been that a deal was very close,” he said. “Now investors have begun to reassess the growth outlook. Should the talks fall apart, they will have a significant impact on the economy and the assumption of a stabilisation in the economy won’t hold.”
The Shanghai Composite Index reversed gains in afternoon trading, falling 0.4 per cent, with export-linked companies pacing declines.
– Zhang Shidong


 China stocks’ outlook hinges on trade talk progress, fund manager says

The Shanghai Composite Index may soon test its 200-day moving average, seen by some technical traders as a dividing line between bull and bear markets. The last time the gauge breached this support line, it dropped by 26 per cent in the following 11 months. Currently, the index is less than 5 per cent shy of its average price over the past 200 days.
– Zhang Shidong
 


Shanghai Composite to test key support level

China’s Ministry of Commerce has confirmed Vice-Premier Liu He will visit Washington for trade talks starting Thursday. 


Breaking: Chinese Vice-Premier Liu He's Washington trip is confirmed

The Shanghai Composite Index rose 0.7 per cent at the close on Tuesday, rebounding from a 5.6 per cent slump – its steepest decline in three years – on Monday. An official confirmation that Chinese Vice-Premier Liu He will visit the US this week for a fresh round of trade talks soothes jittery sentiment. Media reports had earlier said China might shorten, or even cancel, the trip after Trump’s surprising tweets about increasing tariffs on Chinese imports over the weekend. 
– Zhang Shidong


China stocks in mild recovery after biggest drop in three years

Hong Kong Exchanges and Clearing Limited (388 HK), owner of London Metal Exchange, is in talks with the provincial government of Guangdong to open a first foreign-operated metals warehouse in the “Greater Bay Area” to add to its Asian network of delivery centres, which currently comprise Taiwan, South Korea and Singapore. The plan, if it comes to fruition, will represent a breakthrough for London Metal Exchange, the world’s largest metals exchange, said Michael Chamberlain, its chief executive.
Shares in HKEX rose by 0.8 per cent amid an advancing market to an intraday high of HK$268.
– Eugene Tang


HKEX in talks to set up metals warehouse in Guangdong, shares rise 

The Hang Seng Index rose 0.5 per cent, or 153.20 points, to 29,363.02. The Hang Seng China Enterprises Index, or the H-share gauge, added 0.2 per cent.
Cnooc, the biggest gainer on the Hang Seng on Tuesday, advanced 3.1 per cent to HK$13.90 on the resilience of crude oil futures amid increasing tension in the Middle East.
Bank of China declined by 1.1 per cent to HK$3.65 for the biggest decline among the constitutes of the index after Morgan Stanley lowered its rating for China’s banking sector.
– Zhang Shidong


Hong Kong stocks rebound alongside mainland China equities

China’s foreign-exchange reserves dropped to US$3.095 trillion by the end of April from US$3.0988 trillion in March, according to the data from The People’s Bank of China. The number is also below a median estimate of US$3.1 trillion in a Bloomberg poll.
The country’s gold reserves, on the other hand, stood at 61.1 million fine troy ounces in April, making it a fifth straight month of gains, central bank data showed.
– Zhang Shidong


China’s foreign-exchange reserves decline in April

Stocks Blog: Consumer names lead rebound in Chinese stocks from biggest drop in three years

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}China says Vice-Premier Liu He to visit US for trade talks this week Shanghai Composite to test key support level

China says Vice-Premier Liu He to visit US for trade talks this week

Shanghai Composite to test key support level