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Yujing Liu

Deb Price

Good day, traders.
Mainland and Hong Kong markets fell China's surveillance camera sector moved into the Trump spotlight.
Catch up on the latest fallout from the new tech storm added to the tariff tornado.
Please send any questions to deb.price@scmp.com .
-- Yujing Liu and Deb Price in Hong Kong


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Stocks

Stocks Blog: China, Hong Kong markets fall as Trump targets mainland surveillance camera makers

Photo: Alamy 

US widens its campaign against Chinese tech companies with eye on surveillance firms

China’s technological ambitions are considered to pose a direct threat to the US. Photo: Reuters

Business

Markets

Economy

'King of stocks' Tencent on a downward roller coaster
China’s big three airlines could see better profit margins this year, Fitch Ratings says


Suppliers of smartphone components caught in emerging new tech war


China stock market

Hong Kong stock exchange

China economy

Live

Here's what we are watching this morning:
Overnight markets/ What futures foretell
-- US stocks fell overnight, pressured by continuing trade tensions. The S&P 500 was down 0.3 per cent. The Nasdaq Composite fell 0.5 per cent, and the Dow Jones Industrial Average dropped 0.4 per cent.
-- Hong Kong futures declined 0.4 per cent at 27,522, while the China A50 futures lost 0.7 per cent.
IPO debuts:

-- Sichuan Furong Technology Co Ltd (603327 SH), a producer of electronics aluminum components, will trade for the first time in Shanghai today.
-- Shares of Hitevision Co Ltd (002955 SZ), which makes interactive touch screens and whiteboards, will start trading in Shenzhen.
Economic statistics/Central Bank action:
 
Hong Kong will release the April reading of the Consumer Price Index (CPI) at 4.30pm.
Corporate events: earnings, meetings, news conferences:
 
Chinese food delivery and services platform operator Meituan Dianping (3690 HK) will release first-quarter earnings, while computer maker Lenovo Group (0992) is also set to announce quarterly results.
Good reads:
As the US widens its campaign against Chinese tech companies with an eye on surveillance firms, Hikvision executives told the South China Morning Post privately that they have anticipated the trade restriction and “no [Chinese] tech companies are coming out of this [trade war] unscathed,” Sarah Dai reports. Chinese President Xi Jinping stressed the need for self-reliance and innovation in a rallying call to the country to prepare to fend off various long-term challenges from the United States, Jun Mai and Amanda Lee report.
And rating agency Moody’s says an extended trade war will strangle growth at China’s busiest ports, Xie Yu reports.


Morning guidance 

Video surveillance companies are fast becoming the new focal point in the emerging new cold war between China and the US on technology.
Surveillance-related companies plunged on the back of a Bloomberg report that the US is considering blacklisting four other firms in addition to Hikvision Digital.
Meiya Pico (300188 SZ), one of the companies said to be under consideration, plummeted by as much as 8.36 per cent. Iflytek (002030 SZ), also singled out by the report, declined by as much as 6.2 per cent. Zhejiang Dahua Technology (002236 SZ) fell 4 per cent, and Hangzhou Hikvision Digital Technology (002415 SZ) dropped 4.8 per cent.
-- Yujing Liu 


Surveillance stocks plunge on report the US is widening campaign against Chinese tech firms

President Xi Jinping visited a rare earths processing company on Monday, and then rare-earth stocks rallied for two straight days even without any clear message from it.
Now the stocks are back in the spotlight again after taking a breather yesterday, as state agency Xinhua reported last evening that Xi stressed the strategic importance of China’s rare earths resources at the company’s site.
Xi said China needs to step up its efforts to develop technology and innovation to better utilise the resource and move the industry to higher value-added segments, according to the Xinhua report.
Stocks related to rare-earth magnets rose, with a gauge tracking 38 of them rising 0.7 per cent in the latest trading. Taiyuan Twin Tower Aluminum Oxide Co (000795 SZ) jumped by the daily 10 per cent limit, and JL Mag Rare-Earth (300748 SZ), the company visited by Xi, rose 3.3 per cent.
China Rare Earth (0769 HK), which saw some wild moves this week -- it jumped as much as 132 per cent on Tuesday at one point -- was trading 8.9 per cent higher.
-- Yujing Liu 


Rare-earth stocks back in the game again following Xi's remarks

The Chinese government’s latest effort to instill confidence into its tech industry is showing positive results, at least in the stock market.
Chinese semiconductor stocks jumped after the government said it would give chip designers and software makers a five-year tax holiday.
A gauge tracking 104 chip-related companies listed in Shanghai and Shenzhen rose 0.6 per cent, with four of them surging by the daily 10 per cent limit, such as Shanghai Fortune Techgroup (300493 SZ).
-- Yujing Liu 


Tax breaks for chip makers boost stocks

Huawei had a hellish Wednesday --  and Chinese telecom investors are not loving it.
The Chinese telecom giant targeted by the US government with a technology export ban suffered another huge blow Wednesday when carries in Taiwan, Japan and the UK decided to either drop Huawei phones for 5G customers or reconsider the sales.
Furthermore, UK-based chip designer Arm Holdings was reported by the BBC to be suspending business with Huawei because some of its technology is from the US.
A gauge of 128 Chinese telecom stocks related to 5G declined 2.3 per cent in early trading, and an index of 139 Huawei-related stocks fell 1.6 per cent. DongHua Testing Technology (300354 SZ), which supplies mechanics performance test systems to Huawei, plunged by 9.6 per cent. Wutong Holding Group (300292 SZ), which sells radio frequency connection systems to Huawei, was down 8.8 per cent.
-- Yujing Liu 


New blow to Huawei drags down 5G stocks

Expect more good news for China’s semiconductor industry, analysts at Citic Securities say.
The Chinese government is likely to roll out more supportive policies to promote its home-grown chip makers after announcing a five-year tax holiday holiday to boost self-reliance, analysts led by Xu Tao wrote in a note today.
The tax break will benefit smaller chip makers and start-ups that made profits for the first time last year or are struggling at the edge of profit making, they wrote.
The analysts recommended stocks that are likely to gain directly from China’s national strategy to become self-sufficient in semiconductors, including Shenzhen Goodix (603160 SH), GigaDevice (603986 SH), SG Micro (300661 SZ), SMIC (0981 HK), and Will Semiconductor (603501 SH).
-- Yujing Liu 


China's home-grown chip makers to enjoy more benefits, Citics says

Equity research veteran Desh Peramunetilleke has been tapped to be the new head of Global Microstrategy Product in Equity Research at Jefferies in Hong Kong.
His newly-formed microstrategy team includes Mahesh Kedia, Shrikant Kale, Barnis Yuen, Jeffrey Tong and Jenny Wu, Jefferies said in an announcement. They will look at company fundamentals for insight into markets and sectors, and mix that with macro trends to develop systematic investment strategies, diagnostic screens and proprietary risk scores for clients, Jefferies said.
“We are very excited to have Desh join Jefferies’ leading equities platform,” said Peter Forlenza, Jefferies’ global head of equities. “We are substantially expanding our Asian equities platform given our outlook on the Asian regional markets and the opportunity. Jefferies is perhaps singular in the industry currently to have the intent and ability to enlist such impressive teams in Asia.”
Peramunetilleke was most recently the head of microstrategy at CLSA.
-- Deb Price 
 


Comings and Goings: Desh Peramunetilleke new head of  Global Microstrategy Product in Equity Research at Jefferies

Smartphone component makers tumbled in Hong Kong, as their top clients Huawei and Apple are facing different troubles amid intensifying hostility between the US and China on technology.
While overseas carriers weigh whether to stop selling Huawei phones to 5G customers, Apple is facing a backlash in China amid rising nationalistic sentiment.
Sunny Optical Technology (2382 HK) declined 4 per cent. AAC Technologies (2018 HK) fell 3.1 per cent, and Q Technology (1478 HK) dropped 1.7 per cent.
-- Yujing Liu 


Suppliers of smartphone components caught in emerging new tech war

Shares of Bank of East Asia (23 HK) fell by as much as 2 per cent to an intraday low of HK$23.90, after Hong Kong's first Chinese-owned bank announced that David Li Kwok-po would step down as chief executive to hand over the daily management of the century-old bank to his two sons.
Li will remain as the bank's executive chairman when the handover takes effect on July 1. 
Read full story here on Li, 80, who is handing over the running of Hong's Kong's first Chinese-owned bank to his two sons.
 
-- Eugene Tang


East Asia shares fall as David Li Kwok-po announces departure 

Overseas traders who want to hedge against their bets in China have a new powerful ally: the state mouthpiece. 
In a report released today, the official news agency Xinhua said conditions are ripe for China to allow foreign investors to trade stock index futures, signalling an increased possibility for the move.
The demand for allocating yuan-denominated assets is on the rise, and so is the need to hedge against the risks in the market, the report says. Liberalising stock index futures will increase the attractiveness of China’s capital markets, it says.
Foreign funds have increasingly called for the opening up, especially after global index compilers such as MSCI and FTSE Russell decided to increase the weighting of A shares in their global indices this year.
-- Yujing Liu 


Time for China to open up stock index futures trading to foreign investors, Xinhua says

Jefferies is cautious on global equities, amid a flareup in the US-China trade wars followed by US President Donald Trump's moves against Huawei and other Chinese tech and surveillance camera companies. But it overall remains modestly bullish on A shares and Hong Kong stocks.
"(T)he relentless expansion in the barring of companies from acquiring US components & software suggests a widening of the dispute to the containment of China’s technology ambitions," Jefferies writes in a note today. 
"Investors continue to underestimate the second-round effects of falling demand from China if the restrictions are enforced. Exports account for 77% of Taiwan’s GDP and just over 53% of South Korean GDP. In turn, semiconductors make up almost a fifth of South Korean exports while machinery & technology account around half of Taiwan’s export mix. We remain Modestly Bearish on both equity markets."  
It moved down Indonesia as well as Taiwan to modestly bearish. It is also modestly bearish on US equities.
 -- Deb Price 
 


Crystal Ball: Jefferies stays modestly bullish on Hong Kong, mainland shares

The protracted US hostility on Chinese tech firms, now widely seen as the trade war’s new front, is giving Chinese markets a very hard time.
All major Chinese indices declined in the morning session. The Shanghai Composite Index fell 0.8 per cent to 2867.48 by lunch break, while the Shenzhen Component Index was down 1.7 per cent. The Nasdaq-style ChiNext Index was 1.5 per cent lower, and the CSI 300 Index of large companies decreased 1.2 per cent.
Surveillance companies reported to be under US blacklist consideration led the declines. Hangzhou Hikvision Digital Technology (002415 SZ) dropped 4.7 per cent, and Meiya Pico (300188 SZ) was down 5.6 per cent. Iflytek (002030 SZ) lost 5.6 per cent and Zhejiang Dahua Technology (002236 SZ) shed 3 per cent.
In Hong Kong, the Hang Seng Index dropped 1.3 per cent to 27,346.59, the lowest level in four months. Mobile services provider Meituan Dianping (3690 HK) tumbled 4.1 per cent ahead of its quarterly earnings release.
-- Yujing Liu


China, Hong Kong stocks weighed down by tech war fears

The shares of Chinese operators of container ports fell, after Moody's Investors Service wrote that the US-China trade war will strangle growth in the throughput traffic in mainland China, where six of the world's 10 largest harbours sit on its coast.
China Merchants Port Holdings (144 HK) fell by as much as 2 per cent to an intraday low of HK$14.70 in Hong Kong, while Shanghai International Port Group (600018 CH) declined by 3 per cent to 7.16 yuan in Shanghai.
-- Eugene Tang


Shares of Chinese container port operators fall on trade war concerns

Chinese voice recognition company Iflytek (002030 SZ) says it has contingency plans for “extreme circumstances”, and its operation would not suffer significant impact from the latest news out of the US, according to Chinese media reports.
The company, reported by Bloomberg to be under the US government’s consideration for an export ban, said it did not receive official notice on the issue and hopes it will be treated fairly by the US, newspaper Securities Times reports.
Overseas business do not account for a large portion of Iflytek’s overall revenue, the company was reported to have said.
Shares of Iflytek fell as much as 8.2 per cent in Shenzhen in early trading, and were most recently down 5.6 per cent.
-- Yujing Liu 


Iflytek says it has plan B for 'extreme circumstances'

China’s attempts to control African swine fever have been insufficient to stem further spread of the disease, with the deadly pig contagion now endemic in two regions, a United Nations group said.
The virus that causes the disease is entrenched among pig populations in the autonomous regions of Tibet and Xinjiang, the Food & Agriculture Organisation (FAO) in Rome said in a report Thursday.
Diseases that are endemic, or generally present, are more difficult to stamp out by quarantining and culling diseased and vulnerable livestock, Bloomberg reports.
“While official sources confirm a rapid spread of the disease, both the speed and severity of the spread could prove more pronounced than currently assumed,” the FAO said in its report. A government investigation in seven provinces found “irrational culling of sows on breeding farms in February, reducing the sector’s core production capacity.”
Read full story here. 



African swine fever virus is ‘endemic’ in China’s Tibet and Xinjiang regions, UN says 

Nomura sees the US and China gearing up for a "prolonged period" of trade battling, with a near-term deal unlikely.
"While we expect a short-term truce during and immediately after the G20 in late June, we think domestic pressures and constraints will drive both sides towards further escalation. We believe that talks will ultimately break down later in the year, resulting in the US imposing the final round of tariffs, probably in Q3 2019, with a proportional response from China. Without a clear way forward during an intensifying 2020 US presidential election, we see a rising risk that tariffs will remain in effect through end-2020," Nomura wrote in a note today.
The 25 per cent tariffs would be on roughly US$300 billion in imports from China, which Nomura's macro research team assigns a high 65 per cent probability of happening. 
Nomura expects the trade war to pressure China’s exports, production and investment in coming quarters. 
"This would be especially evident in its tech sector, which comprises the largest proportion in the $300bn tariff list. We expect Beijing to significantly ramp up easing/stimulus measures to stabilize financial markets and bolster growth," it says.
If the US ramps up tariffs, Nomura says the long-term impact on China could be severe. 
"Specifically, there could be bigger indirect impacts through rising uncertainty, especially when considering mounting domestic challenges (more credit defaults, a problematic property sector and overloaded debt). Moreover, rising trade tensions may seep into investment, as exporters, including multinationals, could shift their factories to other countries to avoid the tariffs." 
-- Deb Price 
 


 Crystal Ball: Trade war resolution looks gloomy, says Nomura

China’s big three state-owned airlines -- Air China (601111 SH), China Southern (600029 SH) and China Eastern (600115 SH) – could see better times ahead, according to analysts at Fitch Ratings
The airlines are likely to benefit from greater efficiency, a potentially lower oil price and regulatory moves to help them trim operating costs, which could lead to better profit margins this year, analysts led by Karl Shen wrote in a report today.
Moreover, the grounding of Boeing 737 Max 8 will have a limited short-term impact on Chinese airlines as the model accounts for only a tiny fraction of their fleets, they wrote.
But the analysts also warned that the deteriorating US-China relationship could slow down seat-capacity growth in the medium to long term, as airlines could be instructed to delay or cancel orders for Boeing aircraft and turn to Airbus, which is tight on capacity after the 737 Max accidents.
--Yujing Liu 


China’s big three airlines could see better profit margins this year, Fitch Ratings says

China’s home appliance giant Gree Electric Appliances (000651 SH) is in the midst of an ownership reshuffle. The market looks a bit worried.
A total of 25 investment institutions gathered in Gree’s headquarter in the southern city of Zhuhai yesterday for a briefing of the sale of a 15 per cent stake in the company by the state-backed controlling shareholder Zhuhai Gree Group.
Those attended include big-name funds such as Hillhouse Capital Group, Boyu Capital, Hopu Investments and Temasek Holdings, according to Chinese media reports.
Chinese tech giant Baidu Inc is very interested in the stake, newspaper Securities Times reported.
Shares of Gree dropped 3.6 per cent to 53.02 in Shenzhen, against a 2.6 per cent decline in the Shenzhen Component Index. The company was downgraded by Citi to sell from a buy recommendation last month, as analysts worried its sales of air conditioners might slow.
-- Yujing Liu 


Gree dips as investors weigh stake purchase

Tencent Holdings (700 HK) has long been dubbed “the king of stocks” by Hong Kong and mainland investors for its strong share price performance in the past – the stock soared by more than 1,700 per cent over the past decade, growing from HK$18 apiece to over HK$325.
But the Chinese gaming and social network giant has lost some of its shine over the past few weeks. Worries over a US-China tech war and disappointing first-quarter revenue growth are weighing on the stock, leading to a decline of 18 per cent in its share price since an April high. A total of US$87 billion of market value was wiped out.
The stock plunged by 4 per cent today, declining for a sixth straight session since the release of its quarterly results. Making up 10 per cent of the Hang Seng Index’s overall weighting, Tencent’s decline contributed the largest downward pressure on the benchmark this week.
-- Yujing Liu 


'King of stocks' Tencent on a downward roller coaster

It was a brutal day for the markets.
The Shanghai Composite Index declined 1.4 per cent to 2,852.52, barely holding up at the 2,850-point level that some say is a critical level for bulls to defend.
The Shenzhen Component Index plunged by 2.6 per cent, and the ChiNext Index was down 2.5 per cent.
Investors sold off telecom stocks as worries over Huawei’s future deepened. A gauge of 135 telecom stocks related to 5G tumbled by 4.3 per cent, with nine of them plunging by the daily limit of 10 per cent.
In Hong Kong, the Hang Seng Index lost 1.6 per cent to 27,267.13. Tech stocks led the decline: Tencent (700 HK) was down 3.8 per cent, AAC Technologies (2018 HK) fell 6.4 per cent, Sunny Optical (2382 HK) was 7.7 per cent lower, and Xiaomi (1810 HK) shed 3 per cent.
-- Yujing Liu 


China, Hong Kong stocks end in steep losses, led by tech and telecom stocks

Stocks Blog: China, Hong Kong markets fall as Trump targets mainland surveillance camera makers

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'King of stocks' Tencent on a downward roller coaster

China’s big three airlines could see better profit margins this year, Fitch Ratings says