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Yujing Liu

Deb Price

Good day, traders.
The Hang Seng rose, snapping a three-day losing streak, after a climbdown by Hong Kong's leader on a controversial extradition bill. China markets were mixed.
Catch up on the action below. If you have questions, please shoot them to deb.price@scmp.com .
— Yujing Liu and Deb Price in Hong Kong 
 


Stocks Blog: Hang Seng gets confidence boost after big Sunday protest, apology from city leader

Protesters march outside Pacific Place in Admiralty to the Central Government Offices in Hong Kong on Sunday. Photo: Dickson Lee

Protesters flood East Point Road in Causeway Bay on Sunday to march to the Central Government Offices. Photo: Sam Tsang

The Hong Kong Stock Exchange flag, China flag and Hong Kong flag are seen outside of the Hong Kong Stock Exchange in Central. Photo: Dickson Lee


China’s rare earth stocks are investors’ new hedge against trade war as Beijing rolls out countermeasures against Trump

Speculation is high that rare earths, used in everything from Apple’s iPhones to Tesla’s electric vehicles, will be employed as a high-stake bargaining chip in the US-China trade dispute. Photo: Reuters

(190520) -- GANZHOU, May 20, 2019 (Xinhua) -- Chinese President Xi Jinping, also general secretary of the Communist Party of China Central Committee and chairman of the Central Military Commission, learns about the production process and operation of the JL MAG Rare-Earth Co. Ltd. as well as the development of the rare earth industry in the city of Ganzhou in east China's Jiangxi Province on May 20, 2019. Xi Jinping visited Jiangxi Province Monday on an inspection tour. (Xinhua/Ju Peng)

Business

Markets

Rare earths soar again in China, but for how long?
Crystal Ball: China's A shares to go up soon, says Citic


Hang Seng snaps three-day losing streak on confidence boost from protest-prompted climbdown by Hong Kong leader on controversial extradition proposal


Live

Morning guidance

* Overnight markets/ What futures foretell
-- On Friday in US markets, S&P 500 slipped 0.16 per cent, Dow Industrials lost  0.07 per cent,  Nasdaq fell 0.52 per cent.
* IPO debuts:  CSSC (Hong Kong) Shipping (3877 HK)
* Economic statistics/Central Bank action: Nothing major 
* Corporate events: earnings, meetings, news conferences
Annual general meetings: Guangdong  Investment (270 HK)
Good Reads: Zhang Shidong, our Shanghai stocks reporter, looks at the jaw-dropping gains of rare earths in China markets and asks how long they can continue. Also, Xiaolongkan, one of China’s largest hotpot chains, will open its first shop in the US in early 2020 and add nine more restaurants overseas in the next two years, the latest indication of the Chinese hotpot industry’s global ambition, Yujing Liu reports.
 

 


Morning guidance 

Organizers estimate that 2 million people joined demonstrations in Hong Kong on Sunday against a proposal that would allow extraditions to China. Police say 340,000, but in a city with about 7.2 million people, that's a lot of people regardless who is right.  City leader Carrie Lam's apology and decision to suspend the bill didn't stop calls for her to step down. Last week, the demonstrations weighed on Hong Kong markets and business sentiment. And this weekend, the largest property sales in Hong Kong since early May drew few buyers.
A potential big driver of the week with be the US Federal Reserve, which could give signals on potential rate cuts on our overnight Wednesday.
Meanwhile, remember the Group of 20 meeting coming up June 28-29? And the uncertainty over whether presidents Donald Trump and Xi Jinping will meet separately and talk trade? US Commerce Secretary Wilbur Ross told The Wall Street Journal on Sunday not to expect a deal.  “The most that might come is new ground rules for discussion and some sort of schedule for when detailed technical talks might resume," he told the news outlet. 
“Even real shooting wars end with negotiation, and this will ultimately end in negotiations,”  Ross told the Journal. “Whether that will be in 10 minutes, 10 weeks, 10 months or longer, it’s not possible to judge.”
Meanwhile, Huawei Technologies is bracing for a 40 per cent to 60 per cent fall in international smartphone shipments, reeling from the US decision last month to blacklist it from US components and software like updates to Google's Android system, reports Bloomberg, which cited people familiar with the matter.
 


ICYMI: Over the weekend

While the benchmark gauge Shanghai Composite Index has remained in the doldrums over the past month amid the trade stand-off between Beijing and Washington, China Minmetals Rare Earth, China Northern Rare Earth (Group) High-Tech and other major producers of the elements have shot up at least 34 per cent, making them the hottest trade on the mainland’s exchanges, reports Zhang Shidong.

 
“If there is a disruption of supply, the hi-tech industries in the US will be affected and that’ll lead to an increase in rare earth prices,” said Ken Chen Hao, a Shanghai-based strategist at KGI Securities. “As long as the trade tension between China and the US carries on, the hot play on rare earth stocks will remain there.”
Still, some investors remain vigilant of the outsize gains, arguing mere policy support will not translate into an immediate improve in earnings.
“The outlook of the sector largely hinges on the progress in the trade war,” said Wu Kan, an investment manager at Soochow Securities in Shanghai. “If there’s a detente, the rally will lose its momentum quickly. It’s mostly an event-driven thematic investment and these stocks are good for day trading, but not a long-term buy given no sign of a pickup in earnings.”
Read full story here.


How long can rare earths soar? 

 
CSSC Shipping Company banged the gong today @HKEXGroup pic.twitter.com/mHrFCRxA8M
— Joy Pamnani (@joypamnani) June 17, 2019
CSSC (Hong Kong) Shipping (3877) joined the Hong Kong Stock Exchange today.
The company debuted in a HK$1,974.5 million (US$252.24 million) initial public offering, with the offer price at the lower end of the price range at HK$1.34 (US$0.17) per share.
CSSC (Hong Kong) Shipping was established in 2012, making it the first shipyard-affiliated leasing company in Greater China. The company offers various services including leasing services, ship broking and loan services.
Today it has grown to become one of the world’s leading ship leasing companies, with a fleet of over 60 vessels. According to a report by F&S, it ranks fourth in the global ship leasing industry with a market share of 3.9% and first in the global non-bank ship leasing industry with a market share of 14.8%.
According to the company prospectus, the funds raised will be used to finance the purchase of more vessels, as a capital base for its sale-and-leaseback projects in respect of marine clean energy equipment (including marine LNG/LPG units), as working capital and for other general purposes.
The stock is trading up a bit at HK$1.35 in  early trading.
— Joy Pamnani
 


CSSC Shipping bangs the gong in new listing in Hong Kong 

The Hang Seng is having a good morning, after city leader apologized as she faced the latest huge protests against an extradition bill.
All sectors were last up, led by pharmeceuticals, soaring 2.6 percent. Energy is up 1.5 per cent and financials were climbing 1.4 per cent. Of the 50 stocks on the benchmark, only one was trading down, Country Gardens (2007 HK), which slipped 1 per cent, to HK$11.34. Country Gardens recently got a price target upgrade from Daiwa to HK$19.10 from HK$16.
A number of property stocks were doing exceptionally well, including Wharf Real Estate Investment (1997 HK), New World Development (17 HK) and Sino Land (83 HK) rising 2.4 per cent.
-- Deb Price 
 


Hang Seng climbing after latest protest, city leader apology

“The Hong Kong market is strong today … because of a confidence boost. People are regaining confidence in the autonomous economy of Hong Kong,” said Louis Tse Ming-kwong, managing director of brokerage VC Asset Management.
“The [extradition] bill being delayed indefinitely is a good thing for the market,” he said. “Sentiment is improving more or less across the board.”
Hong Kong chief executive Carrie Lam on Saturday announced that she was suspending the contentious extradition bill and in a statement on Sunday apologised to the citizens for how the push for the bill was handled.
Tse said that nearing the end of June, traders can foresee “window dressing” — when fund managers and others sell loser stocks and replace with big gainers to make themselves look better — boosting the index to a more favourable first-half performance.
“But this year, with the Sino-US tussles, it would be a bit different,” he added, saying that the outcome of the G20 meeting will decide where the market will go from here.
— Daryl Choo 
 


Protests give 'confidence boost' to Hang Seng, says Louis Tse Ming-kwong of VC Asset Management

Alibaba Group Holding, operator of the world’s largest e-commerce platform, has applied to split its ordinary shares, part of a move to increase the flexibility of its capital raising activities, including the issuing of new shares, reports Louise Moon.
The New York-listed Chinese e-commerce giant, which owns the South China Morning Post,  is proposing to split each of its ordinary shares into eight, according to a stock exchange filing. Under the changes, one American Depositary Share (ADS), which currently represents one ordinary share, will represent eight ordinary shares. Voting rights of shareholders will remain the same.
The move comes after speculation the e-commerce firm has filed for a Hong Kong listing, which could raise as much as US$20 billion in what would be the city’s largest IPO, according to Bloomberg which cited people familiar with the matter. It said the company has picked China International Capital Corporation and Credit Suisse Group as its lead banks.
Read full story here. 
 
 
 


Alibaba to split shares in US as it moves to boost capital raising

Shares of Hong Kong Exchanges & Clearing Limited (388 HK), the operator of Asia's second-largest capital market, rose by as much as 1.7 per cent to an intraday high of HK$364.80 in an advancing market, after Alibaba Group Holding announced a share split that would be the first step toward a much-heralded secondary listing in Hong Kong.
The Hangzhou-based e-commerce company, which owns the South China Morning Post, has applied for a one-to-eight stock split that would give it the flexibility to raise fresh capital and attract new investors. The plan is subject to a vote by Alibaba shareholders in Hong Kong on July 15.
— Eugene Tang 


Hong Kong stock operator jumps on Alibaba share split news

Hansoh Pharmaceutical Group (3692 HK) is plummeting after its mouth-watering 36.75 per cent jump Friday when it debuted in Hong Kong.
Traders rushed to get out their gains. The stock is now down 9.7 per cent in early trading in a market overall going up.
Hansoh is one of the city's biggest initial public offerings of 2019, raising roughly US$1 billion.
The excitement around the pharmaceutical industry comes amid a growing interest in health care in China. According to Hansoh, health-care spending in China has surged to 5.9 trillion yuan (US$853 billion) last year from 3.5 trillion yuan in 2014, and is projected to top 9.4 trillion yuan in 2023.
— Deb Price 

 


Hansoh Pharmaceutical, which soared in debt Friday, plummets as traders grab profits and run

The long-awaited London-Shanghai Stock Connect begins today.
Companies listed in Shanghai and London will be able to sell shares in the other's market.
Huatai, one of China’s largest brokerages, is expected to make its London market debut today, London time, Reuters reports. It will be the first company to trade via the London-Shanghai Stock Connect project, the news outlet said.

 


Shanghai-London Stock Connect begins today

The Shanghai Composite Index slipped into negative territory after a morning with some gains.
Down sectors at the lunch break included information technology and consumer staples. Health care, however, was up nearly 1 per cent.
Some infrastructure-linked shares continued to do well, continuing a theme from last week, as traders bank on stimulus. Sumec (600710 CH), which makes construction and mining machines, hit the daily 10 per cent limit. So did Lanzhou LS Heavy Equipment (603169 CH), which makes heavy machinery. 
Rare earths, which trade on the Shenzhen and Shanghai exchanges, were up.
JL Mag Rare-Earth (300748 SZ), the company visited by Xi Xinping last month in what set off a trading frenzy in the key ingredients to everything from iPhones to missiles, is up 3.8 per cent.
China Minmetals Rare Earths (000831 CH) is up 4.66. China Northern Rare Earth Group High-Tech (600111 CH) is up 1.7 per cent.  Xiamen Tungsten (600549 CH) is up 1.9.
Meanwhile, in Hong Kong,  China Rare Earth (769 HK) was trading flat.
The Shenzhen Stock Component Index, at the lunch break, was down 0.52 per cent, while the CSI of large stocks on both the Shenzhen and Shanghai boards slipped 0.2 per cent.
— Deb Price 
 


China markets down; infrastructure, rare earths buck trend

The A-share market is headed towards an inflection point to go up soon, according to Citic Securities analysts.
A number of factors indicate a changing environment for Chinese shares, such the strong prospect of an interest rate cut by the US Federal Reserve within this year, analysts led by Qin Peijing wrote in a report yesterday.
As central banks in Australia, Russia and India have already cut rates, the loosening global monetary policy will lead to a stable inflow of foreign capital into China, the report says. China has already seen a net inflow of 25.3 billion yuan (US$3.7 billion) in stocks trading during first two weeks of June.
China’s domestic monetary policy is likely to remain accommodating, while the US-China trade talks are likely to resume after a meeting between Presidents Xi Jinping and Donald Trump at the G20 summit in Japan at the end of this month, according to the report.
Citic recommends that investors increase their allocation in stocks, with a focus on consumption and financial shares that are favoured by foreign investors. The infrastructure sector and hi-tech segments, including semiconductor and biopharmaceutical, are also their top picks.
— Yujing Liu 


Crystal Ball: China's A shares to go up soon, says Citic

Rising Nonferrous Metals Share (600259 CH) and other Chinese rare earth producers were on a roll again as official talk lifted the stocks.
When asked if China will use the metal as a countermeasure against the US amid the trade war, a spokesman from the National Development and Reform Commission said today that is China is firmly opposed to the use of products made from rare earth to contain its development.
Rising Nonferrous jumped 5.3 per cent to 46.56 yuan in Shanghai and China Minmetals Rare Earth (000831 CH) climbed 4.7 per cent to 18.86 yuan in Shenzhen. JL MAG Rare-Earth added 4 per cent to 62.52 yuan.
China's rare earth stocks have been a new hedge for investors amid the drawn-out US-China trade war.
— Zhang Shidong 


China’s rare earth stocks on fire again on NDRC comment

The new technology innovation board in Shanghai, officially launched last week, will compete with Hong Kong for listings as both allow certain types of unprofitable tech firms to raise funds, Jefferies analysts wrote in a report.
“It is worthwhile noting that as the US trade war has heated up, China has announced plans for its own version of a Nasdaq-style board in Shanghai,” analysts led by Sean Darby wrote in a report.
“We had highlighted in the past that China needed to recycle its savings surpluses back into the real economy through approved channels rather than via the shadow financial system,” they wrote.
— Yujing Liu


New Shanghai tech board will compete with Hong Kong, Jefferies says

Pharmaceutical companies related to the artemisinin surged, after Chinese scientist and Nobel Laureate Tu Youyou said today her team has made a breakthrough in solving the problem of artemisinin resistance to treat malaria.
The discovery of artemisinin, a chemical compound in a traditional Chinese herb, has saved tens of millions of lives in Africa from malaria, a deadly mosquito-borne infectious disease.
Drugmakers developing new artemisinin-based medicine skyrocketed. Harbin Gloria Pharmaceuticals (002437 SZ) jumped by the daily 10 per cent limit, and so did Zhuhai Rundu Pharmaceutical (002923 SZ). Two other firms surged by 10 per cent, while a gauge tracking 11 related stocks rose 5.7 per cent.
— Yujing Liu 


Artemisinin breakthrough boosts stocks

Jefferies likes Geely Automobile Holdings (175 HK) and Guangzhou Automobile Group (2238 HK)  in the China car sector.
While each remains a buy, analyst Patrick Yuan dropped the price targets: Geely is now HK$18.80 from HK$21.30, while GAC is HK$9.70 from HK$12.
In Geely and GAC, the analyst likes their attractive valuation with limited downside.
"Both stocks are trading at historically low levels, which should rebound once sentiment improves," Yuan writes. Also, they will benefit from stimulus policy. "GAC will benefit from Guangzhou government's stimulus policy. Geely is likely to benefit most from any stimulus for the low-end market," he writes.
Of car companies he rates as buys, only BAIC Motor (1958 HK) was given a boost in its price target, to HK$5.90 from HK$5.10.  
The analyst sees pressure continuing on electric vehicles. Government subsidies will be cut for EV purchases by 60-70 per cent in the second half of the year. 
"Even though (original equipment manufacturers) have to produce and sell EVs to meet NEV credit regulation, we believe individual consumers' demand for EVs will largely diminish. In May, electric car sales growth was only 14% YoY, the lowest level in past 28 months," he writes.
Car companies need to roll out so-called China VI cars that meet higher emissions standards.
"Some car companies are planning to increase production capacity utilization from 70% to 100% in July, according to our conversations with industry insiders," Yuan added.
Geely is trading up 1.8 per cent at HK$12.38, while GAC is also up 1.8 per cent to HK$7.15. 
— Deb Price 
 


Crystal Ball: Geely, Guanzhou Auto standouts, says Jefferies 

Shanghai Higher People’s Court, the city’s most powerful judiciary institution, said it would punish criminal offences related to the new technology and innovation board in order to protect the board and its registration-based listing system.
In a new guideline released today, the court said it would also properly handle civil disputes from practices such as insider trading and market manipulation, news website Kankan News reported.
“Companies to be listed on the technology board are all innovative firms with a relative uncertain outlook, which could lead to greater market volatility,” according to the court.
The court will also explore letting the Shanghai Financial Court rule over financial civil and commercial disputes related to the setting up of the board, it said.
— Yujing Liu


Shanghai court vows to punish criminals to protect new tech board

Foreign companies will be able to list their shares in mainland China for the first time starting today, with the official launch of the long-awaited London-Shanghai Stock Connect, reports Daniel Ren.
The groundbreaking project, which will enable firms listed in the UK and mainland China to raise funds on each other’s stock market, is seen as a major step for Beijing in its efforts to internationalise its markets.
Huatai Securities, one of China’s largest brokerages, will make its trading debut on the London Stock Exchange at 8am local time (3pm Hong Kong time) as it becomes the first company to trade via the new link. Investors in the UK capital will be able to buy and sell global depository receipts in Huatai, which has raised US$1.54 billion through the flotation.
Read full story here. 


First Chinese company making debut on London-Shanghai Stock Connect

Huawei’s output could reduce by 30 per cent, or US$30 billion, over the next two years due to the US crackdown, its founder Ren Zhengfei said today during a panel discussion in Shenzhen, where the telecommunications giant is headquartered.
Huawei will switch its products in the two years and become vibrant and lively again, he said, according to Chinese media reports. The US government in May banned American suppliers from selling to Huawei without special approval because of national security issues, sending shock waves across the global telecom and smartphone supply chain.
A number of US companies, including Google, Qualcomm and Intel have severed ties with Huawei.
— Liu Yujing 


Founder of Huawei says output to be cut by 30 per cent in two years

Maoyan Entertainment (1896 HK), which operates China’s largest movie ticketing app, surged by as much as 13 per cent after it was included in a list of stocks that can be traded by mainland Chinese investors through the Stock Connect programme today.
The firm, which counts internet giant Tencent Holdings as its second-largest shareholder, raised US$232 million in an initial public offering in February. Shares of Maoyan rose 7.9 per cent in the latest trading.
— Yujing Liu 


Movie ticketing app jumps on Stock Connect inclusion

The Hang Seng Index is poised to snap a three-day losing streak, with sentiment boosted by the massive protest on Sunday that prompted the Hong Kong leader to put off a proposal that would allow extraditions to mainland China.
Among gaining sectors, health care led, up 1.7 per cent, followed by energy, up 1.1 per cent, and financials up 0.7 per cent.
Real estate, industrials and information technology were all up around 0.5 per cent.
Wharf Real Estate Investment (1997 HK) led gains in late afternoon trading, up 3 per cent. 
Losers included Macau casino operators Sands China (1928 HK), down nearly 0.6 per cent, and Galaxy Entertainment (27 HK), which slipped 0.8 per cent.
Last week, the Hang Seng fell Wednesday — the day of a massive protest following a huge one on Sunday — and Thursday and Friday.
— Deb Price 
 


Hang Seng on track to snap three-day losing streak 

China stocks end mixed in weak trading today, led by pharmaceuticals related to artemisinin.
The Shanghai Composite Index edged up 0.2 per cent to 2887.62, after testing and failing to stand above the 2,900-point resistance level. The benchmark has gained 16 per cent since the beginning of this year, while a re-escalation in the US-China trade war has hammered it by 12 per cent since an April high.
The Shenzhen Component Index fell 0.3 per cent to 8,780.87, while the ChiNext Index of start-ups dropped 0.8 per cent.
Total turnover in Shanghai and Shenzhen was less than 350 billion yuan, a very low level for a market that used to record more than 1 trillion yuan of trading every day in early April.
A gauge tracking 11 stocks related to artemisinin, the compound that could treat malaria, rose 5.6 per cent.
Chinese scientist and Nobel Laureate Tu Youyou said today her team has made a breakthrough in solving the problem of artemisinin resistance to treat malaria.
The discovery of artemisinin, a chemical compound in a traditional Chinese herb, has saved tens of millions of lives in Africa from malaria, a deadly mosquito-borne infectious disease.
— Yujing Liu 


Stocks Blog: Hang Seng gets confidence boost after big Sunday protest, apology from city leader

Rare earths soar again in China, but for how long? Crystal Ball: China's A shares to go up soon, says Citic

Rare earths soar again in China, but for how long?

Crystal Ball: China's A shares to go up soon, says Citic