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Deb Price

Good day, traders.
China and Hong Kong markets fell, as investors continued to feel uncertainty around souring US-China relations. 
Catch up on the day's action below. If you have questions or feedback, please reach out to deb.price@scmp.com .
-- Deb Price in Hong Kong
 
 
 


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Stocks

Stocks Blog: Shanghai posts fourth straight day of losses, with pork and pharmaceuticals big sector losers

Pigs in China. Photo: Associated Press 

A man walks past an electric board displaying stock prices in Beijing on May 14, 2019. Photo: Associated Press


Huawei trade ban to test China’s 5G roll-out as Beijing set to issue commercial licences

A man stands next to a 5G sign at the Tencent Global Digital Ecosystem Summit in Kunming, Yunnan province, on May 23, 2019. Photo: Reuters

China Telecom technicians test equipment for the carrier’s 5G base station near the Yellow River in Lanzhou, Gansu province, on May 16, 2019. Photo: Reuters

Business

Markets

Economy

Chinese pharmaceuticals fall amid government audit
China stocks to stay range-bound until clear trade signs, Hengsheng Asset says


Pig-linked stocks squeal in plunge today as African swine fever continues to upend sector; 5G stocks surge  


China stock market

Hong Kong stock exchange

Live

Here's what we are watching this morning:
Overnight markets/ What futures foretell
-- In US markets, S&P 500 lost 0.3 per cent,  Nasdaq shed 1.6 per cent, and the Dow Jones Industrial Average rose 0.02 per cent.
-- Hong Kong futures were up 0.4 per cent, while the China A50 futures were 0.5 per cent higher. 
IPO debuts:
--- None 
Economic statistics/Central Bank action:
-- Nothing scheduled 
Corporate events: earnings, meetings, news conferences:
Annual general meetings: Sunac China Holdings (1918 HK)
Good reads: The Huawei trade ban will test China’s 5G roll-out as Beijing is set to issue commercial licences, tech reporter Zen Soo writes. Link Reit looks to the mainland as Hong Kong rent growth cools, Lam Ka-sing and Zheng Yangpeng write. More Chinese cities are set to join Guangzhou and Shenzhen in increasing car ownership quotas to lift declining sales, reports Zhang Shidong. 
 


Morning guidance 

China Resources Gas Group (1193 HK) was upgraded to outperform from hold by Daiwa Securities analyst Dennis Ip, with its price target raised to HK$39.50 from HK$36.50. That would be a 5.6 per cent rise from its close.
-- Deb Price
 


China Resources Gas upgraded to outperform at Daiwa

Kunlun Energy (135 HK) was downgraded to underperform from neutral by Credit Suisse.
The Chinese crude oil and natural gas producer has 18 buys, three holds and one sell among analysts tracked by Bloomberg.
-- Deb Price 
 


Kunlun Energy downgraded to underperform by Credit Suisse

Northern Rare Earth (600111 CH) was downgraded to reduce from hold by HSBC.
HSBC raised its price target to 10.45 yuan from 10.36 yuan, or a drop of 19 per cent from its close. 
It shot up along with other Chinese rare earth stocks as the key minerals were pulled into the US-China trade war. Since May 6, it is up nearly 35 per cent.
-- Deb Price  
 


Northern Rare Earth downgraded to reduce by HSBC

Traders are still battling their nerves over uncertainties around US-China relations.
The Hang Seng opened up, but has slipped into negative territory. It was last down 0.1 per cent at 26,845.42.
Tencent (700 HK) is down 1.1 per cent, at HK$329.8, while AIA (01299 HK) is up 1.4 per cent to HK$73.50.
The Shanghai Composite is down 0.4 per cent at 2,877.69.
-- Deb Price 
 


Hang Seng, Shanghai decline as traders battle trade jitters

Tencent (700 HK) was rated a new buy by Loop Capital, with a price target of HK$450, or a 35 per cent jump from its Monday close. 
The Internet giant has seen a 16 per cent slide in its price since mid April, and is down 1 per cent in early morning trading at HK$330.
-- Deb Price 


Tencent is new buy at Loop Capital 

China Tower (788 HK) was rated a buy by Jefferies analysts Edison Lee and Timothy Chau.
The stock has been hit by the export ban on Huawei, falling 22 per cent from late April. But the analysts say China Tower will be more resilient than other supply-chain stocks in a 5G rollout. They say lower 5G revenue will be partly offset by lower capex to build new towers, and also that a slower 5G build will mean a slower 4G retirement.
They give the stock a price target of HK$2.55. It is up in morning trading 0.5 per cent at HK1.84.
"The perception that C[hina] Tower's growth is highly leveraged to 5G build has caused a sell-off in its stock after the US export ban on [Huawei] cast doubt about the scale of China's 5G build," they write in a note sent out today. 
"While we do not disagree on the risk of 5G delay in China, we stress that there are three aspects of C Tower's business that can cushion the downside: 1) the Chinese telcos have a minimum rental commitment based on the current lease terms (expiring by the end of 2022), which means the rental revenue will not fall even if the telcos start retiring 2G/3G but not build 5G, 2) a slower 5G build means the telcos will unlikely retire 4G as quickly even after 2022, and 3) slower 5G build will likely translate into lower capex for C Tower since it will need to build fewer new towers to support the telcos' denser 5G networks. Moreover, C Tower will continue to benefit from CU's and CM's 2G re-farming, even though CM's pace of 2G re-farming could slow somewhat in case of a 5G delay."
The biggest risk they see isn't 5G delay but potential telco consolidation and the use of 700MHz.
-- Deb Price 


 China Tower is a buy at Jefferies 

Stocks linked to 5G in China shot up today, helping cap overall losses on the Shenzhen benchmark.
The US blacklisting of Huawei Technologies, the global leader in 5G telecoms network equipment, has raised concerns about the ability of China to stick to its plan for a speedy roll-out.  The Ministry of Industry and Information Technology says it will issue licences for commercial 5G mobile services “in the near future.”
But traders were hot on information technology in early trading. It was the one sector up on the falling Shenzhen Composite, rising 0.1 per cent. And within that, communications equipment companies were up 1.9 per cent.
Guomai Technologies (002093 SZ), a network integration services provider, hit the 10 per cent upside daily limit, rising to 8.98 yuan. 
Wutong Holding Group (300292 SZ), which sells radio frequency connection systems to Huawei, jumped 5.4 per cent to 8.62 yuan. 
Shanghai Fortune Techgroup (300493 SZ) climbed 3.3 per cent to 8.83 yuan.
DongHua Testing Technology (300354 SZ), which supplies mechanics performance test systems to Huawei, rose 1.6 per cent to 10.74 yuan.  
-- Deb Price 


5G stocks shoot up in China 

The Shanghai Composite is being pulled down by all sectors except communication services, whose stocks are up a scant 0.23 per cent. Consumer staples were down 2 per cent, while health care, materials and industrials were down by at least 1.4 per cent.

Of stocks on the benchmark, only 264 were trading up recently, compared to 1,201 falling and 46 unchanged.
Eight stocks hit or were near hitting the 10 per cent daily upside limit. They include Telecom provider GuangDong Super Telecom (603322 SH), which was riding on a wave of enthusiastic buying related to news that China will issue licences for commercial 5G mobile services “in the near future.” Also on that wave was Nanjing Huamai Technology (603042 SH), which makes and distributes telecommunications equipment.
Ten stocks hit or were near hitting the 10 per cent downside limit. They included Gansu Dunhuang Seed Group (600354 SH), which sells seeds, vegetables and flowers and has an import export business, last at 7.62 yuan.  

-- Deb Price 
 


Shanghai's only bright spot is communication services 

Tencent is getting fresh attention, with three new ratings.
HSBC maintains it as a buy, with a target price of HK$466. Loop Capital Markets also calls it a buy, with a target price of HK$450.
Sinolink Securities maintained its neutral rating, but lowered its target price to HK$360 from HK$398.
The internet giant is back on a roller-coaster ride, having climbed out of a rut hit on October 30, 2018, when it traded at HK$252.17, to a recent high of HK$395.60 on April 17, to today's intra-day price of HK$327.60.
Overall, analysts are bullish on the stock, with 52 tracked by Bloomberg calling it a buy, seven a hold and none a sell, with a consensus 12-month target price of HK$429.22.
 

-- Deb Price  
 


Tencent gets fresh look, with two buy ratings

Pork-linked stocks are squealing, with broad-based declines seen in China, as African swine fever continues to roil the pig sector.
Fujian Aonong Biological Technology Group (603363 CH) was down 5.7 per cent to 21.44 yuan, animal feed maker Jiangxi Zhenbang Technology (002157 CH) fell 6 per cent to 18.62 yuan, and Tecon Biology (002100 CH) fell 5.2 per cent to 9.21 yuan. 
Meanwhile, China Animal Husbandry Industry (600195 CH) fell 3.1 per cent to 12.34 yuan, Tianjin Ringpu Bio-Technology (300119 CH) dropped 1.29 per cent to 12.27 yuan, and Tangrenshen Group (002567 CH) fell 4.7 per cent to 13.75 yuan. 
Jinyu Bio-technology (600201 CH)  bucked the trend and was up 1.8 per cent at 14.96 yuan, as did Pulike Biological Engineering (603566 CH), which was up 1 per cent to 13.11 yuan. 
Overall, the gauge that tracks pork-related stocks in China fell 2.6 per cent.
In Hong Kong pork producer giant WH Group (288 HK) was up 1.7 per cent to HK$6.98. 
The state-run Global Times reported last night that China was extending credit support and providing short-term interest subsidies to pig breeding farms. Local governments were told to extend short-term loan interest support to pig breeding farms and large-scale pig farms, the Global Times said, via loans to buy feed, sows and piglets. 
But that amount of help didn't appear to be enough to calm investors' nervousness.
African swine fever is fatal to pigs, and has wiped out 20 per cent of the stock in China, the world's largest pork market. Pork prices may jump 70 per cent to record levels in the second half of 2019, according to Chinese government forecasts.
No vaccine exists but China reported late last month that it is working on clinical trials, with two candidates shown in laboratory situations to provide immunity, according to a report by the China National Radio. However, the disease has flared up in various parts of the world since the early 1900s, with no successful vaccine ever having been developed. Highly contagious, it has spread throughout China since the outbreak was reported last August.

-- Deb Price 

 


Pork-linked stocks suffer steep falls in China as African swine fever continues to upend sector

Shui On Land (272 HK), the mainland-focused developer known for its expertise in large-scale urban renewal projects, has carved a niche for itself in China’s ultra competitive retailing sector by launching the mainland’s first shopping centre dedicated to women in Shanghai, reports Daniel Ren.
Located in the heart of downtown Shanghai, in Huaihai Road, Xintiandi Plaza aims to become a lifestyle destination for women of all ages, securing dozens of tenants to offer shoppers highly customisable interactive experiences.
Tremendous changes have taken place in the mainland’s shopping mall businesses over the past decade, with booming online retailing posing a severe threat to the survival of the bricks-and-mortar model.
Dozens of property managers have turned to digital technologies to better analyse people’s shopping habits and to accurately address their needs with tailored services.
Xintiandi Plaza has drawn 16 international brands to open their first outlet on the mainland, hoping to provide female customers one-of-a-kind shopping experience.
They include French pastry shop L’éclair de Genie, PS.Cafe from Singapore and Belgian diamond jeweller Diamanti Per Tutti.
China has 400 million women between the ages of 20 and 60, making them one of the major driving forces of retail sales growth.
The stock is trading flat today, at HK$1.79.
Read full story here. 


Shui On Land launches mainland's first shopping centre focused on women 

The shares of Chinese pharmaceutical producers declined, after the government commenced a nationwide audit of 77 major drug companies including the Chinese units of Sanofi, Eli Lilly and Bristol-Myers Squibb, following an accounting scandal at one of the country's largest listed firms.
Nanjing King-Friend Biochemical Pharmaceutical (603707 CH), which produces heparin sodium raw materials in Jiangsu province, fell by as much as 4.9 per cent to an intraday low of 31.06 yuan on the Shanghai exchange.
Shandong Buchang Pharmaceuticals (603858 CH), a producer of herbal treatments, fell 0.6 per cent to 25.08 yuan. Shanghai Fosun Pharmaceutical Group (600196 CH) fell as much as 2.9 per cent to 23.94 yuan.
Last month, Kangmei Pharmaceutical (600518 CH) admitted that it had overstated its cash position by as much as US$4.3 billion, setting off the biggest auditing scandal in China's drugs industry. In response, the Chinese authorities are doing a clean sweep of the industry to drive out errant producers, tighten approvals and instill regulatory discipline in the health-care industry. 
-- Eugene Tang


Chinese pharmaceuticals fall amid government audit

China rare earths are having a bruising day, with well-known stocks suffering steep declines.
In Hong Kong, China Rare Earth (769 HK) was trading down 6.2 per cent at HK$0.61. 
That stock soared as much as 132 per cent in recent intra-day trading after President Xi Jinping set off a frenzy in buying and selling of rare earth-linked stocks when he visited L Mag Rare Earth on May 20. The visit spotlighted the US' dependence on China for rare earths, which are used in everything from i-Phones to guided missiles. 
In China, China Minmetals (00831 CH) was last down 3.2 per cent to 14.91 yuan, while China Northern Rare Earth Group High-Tech (600111 CH) was down 2.7 per cent to 12.48 yuan, and Xiamen Tungsten (600549 CH) fell 2.6 per cent to 14.18 yuan.
L Mag Rare-Earth, the company visited by Xi, was down 0.2 per cent at 60.31 yuan.

 
-- Deb Price  
 


Rare earth stocks suffer steep falls

Hong Kong Exchanges & Clearing (388 HK), the operator of the city's equity bourse, declined for the fourth day, dropping by as much as 0.8 per cent to HK$244.60, after Refinitiv's data showed that it was surpassed in the first five months of the year by New York and Nasdaq in the amount of money raised through initial public offerings (IPOs).
Hong Kong was the world's top IPO market in six of the past 10 years.
-- Eugene Tang 
 


Hong Kong Exchange & Clearing falls as it lags behind New York, Nasdaq on IPOs

Expect stocks on the mainland to be range-bound as traders await some certainty in the tug-of-war between the US and China over trade and tech, says Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai.
Those signals, Dai said, might come out of the the G20 economic summit in Japan, which presidents Donald Trump of the US and Xi Jinping of China will attend and may set aside time to discuss how to get the trade talks back on track. The gathering of the leaders representing more than 80 per cent of global GDP will be in Osaka on June 28-29. 
"There’s no clear factor that will either drive up stocks or weigh on shares," Dai said. "Markets will probably bounce back after the decline as the valuations of big-weightings are still cheap. Before the G20 summit meeting ...  there will be no clear direction on stocks."
-- Zhang Shidong 
 


China stocks to stay range-bound until clear trade signs, Hengsheng Asset says

The Shanghai Composite Index fell 1 per cent, marking its fourth straight day of declines.
Every sector fell, with the biggest declines seen in consumer staples, down 2 per cent, health care, down 1.9 per cent, and information technology, down 1.6 per cent. By the close, 1,178 stocks on the benchmark fell, while only 282 rose and 51 were unchanged.
Sixteen stocks fell by the 10 per cent daily limit or near that, while 12 stocks soared up to the same 10 per cent upward limit or near there. Losers included Gansu Dunhuang Seed Group (600354 CH), Xinjiang Talimu Agriculture (600359) and Zhongnongfa Seed Industry Group (600313 CH). Agriculture stocks tended to do poorly, as China deals with a double whammy of African swine flu threatening its pig market and the army fall worm chomping through its corn and other crops.
The Shenzhen Composite Index ended down 1.43 per cent, dragged down by consumer staples, which fell 2.1 per cent, and industrials and materials, which both fell 1.6 per cent.
The Shanghai Shenzhen CSI 300 Index of 300 A shares on the two exchanges fell 0.9 per cent, to 3,598.47. 

 
-- Deb Price 


Shanghai posts fourth straight day of losses 

Hong Kong's Hang Seng Index fell for the fifth consecutive day, declining 0.5 per cent to 26,761.52.
Health-care stocks dropped the most, declining 3.3 per cent. Information technology was also a big loser, falling 1.9 per cent.
The day's biggest loser on the Hang Seng was CSPC Pharmaceutical Group (1093 HK), which dropped 3.8 per cent to HK$12.08, as China launched an audit of major drug companies, weighing down sentiment about Chinese drug makers in Hong Kong and the mainland.
Sunny Optical (2382 HK) dropped 2.6 per cent to HK$66.95, while Geely Automobile Holdings (175 HK) fell 2.4 per cent to HK$12.48. 
Macau casino operator Sands China (1928 HK) fell 2 per cent to HK$33.60, adding to its 3.4 per cent loss on Monday, as US-China trade worries raise concern about whether high rollers and other big gamblers will continue to hit the tables. 
Pork producing giant WH Group (288 HK) bucked the trend, rising 2.2 per cent in the largest gain on the benchmark. A number of property conglomerates did well also: Swire Pacific (19 HK) rose 1.6 per cent to HK$94.45; China Resources Land (1109 HK) rose 1.3 per cent to HK$32.25, while CK Infrastructure Holdings (1038 HK) rose 1.3 per cent to HK$61.85.
-- Deb Price 
 


Hang Seng posts fifth consecutive day of losses

Stocks Blog: Shanghai posts fourth straight day of losses, with pork and pharmaceuticals big sector losers

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}Chinese pharmaceuticals fall amid government audit China stocks to stay range-bound until clear trade signs, Hengsheng Asset says

Chinese pharmaceuticals fall amid government audit

China stocks to stay range-bound until clear trade signs, Hengsheng Asset says