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Georgina Lee

Deb Price

Good day, traders —
Catch up on the day's action below. Please send any questions to deb.price@scmp.com .
— Georgina Lee and Deb Price


Stocks Blog: All eyes on Osaka as Xi and Trump prepare to talk trade at G20

Tourists pose for photos on a bridge in Osaka, Japan. Photo: Agence France-Presse

Business

Markets

Crystal Ball: 'Knee-jerk' reaction to US probe presents 'buy' opportunity for China Merchants Bank, says brokerage Everbright
CSC Financial plunges 10 per cent after Citic Securities’ planned sale of stake


US Fed chairman Jerome Powell reiterates signals that a rate cut is coming due to weakness in the US economy


Stocks

China stock market

Hong Kong Stock Exchange

Live

Here's what we are watching this morning:
Overnight markets/ What futures foretell
-- Overnight in US markets, S&P 500 was down 0.95 per cent,  Nasdaq fell 1.51 per cent, and the Dow Jones Industrial Average was down 0.67 per cent.
 -- Hong Kong futures were down 0.48 per cent, while the China A50 futures were down 0.5 per cent.
IPO debuts:
AM Group (1849 HK) debut in Hong Kong
Economic statistics/Central Bank action:
None
Corporate events: annual general meetings
 
Gree Electric Appliances (000651 CH), China Southern Airlines (1055 HK), Metallurgical Corp of China (601618 CH); Huatai Securities (601688 CH), China Shipbuilding Industry (601989 CH) and Datang Power (0991 HK)
Good reads: A truce on new tariffs to buy more time is the most likely outcome of the Xi-Trump meeting in Osaka, Japan, a team of reporters on our China desk reports. ZTE Corp, the world’s fourth largest telecommunications equipment supplier, said it has secured more than 25 commercial 5G network contracts to date, reports Li Tao.
 


Morning guidance 

The Hang Seng  Index opened  0.35 per cent, or 99.61 points lower, at 28,086.37,  led by losses in property stocks and some Chinese banks. In China, the CSI 300, which tracks blue chips listed on the Shanghai and Shenzhen bourses, slipped a bit, down 13.56 points or 0.36 per cent at 3,787.75.
Investors continued to sell Chinese banks, after a Washington Post report Tuesday that US investigators are probing three Chinese banks’ alleged involvement in helping finance North Korea’s nuclear-proliferation network. Two of them are listed in Hong Kong: China Merchant Bank (3968 HK), fell 1.03 per cent to HK$38.1,  while Bank of Communications (3328 HK) fell 1.68 per cent to HK$5.85.
In Hong Kong, properties also dragged down the Hang Seng, with Sun Hung Kai Properties (0016 HK) down 2.17 per cent at HK$130.80. Hang Lung Properties fell 2.26 per cent to HK$18.18, while CK Assets fell 1.95 per cent to HK$60.10.
Investors await further signs of a potential deescalation of the US China trade war. The high-stakes meeting between president Xi Jinping and president Donald Trump is expected to take place Saturday on the sidelines of the G20 Summit in Japan.
Bloomberg reported overnight, citing people familiar with the plans, that the meeting will likely result in another truce on new tariffs on an estimated US$300 billion worth of Chinese imports, similar to how their last meeting in Buenos Aires in December resulted in a tariff suspension to effectively buy more time for further negotiations.
The Shanghai Composite Index fell 0.46 per cent, or 13.6 points at 2968.47. Decliners were led by China Merchants Bank (600036 CH), down 4.82 per cent at 36.13 yuan. The third bank that was mentioned in the Washington Post report, Shanghai Pudong Development Bank (600000 CH), was down 3.08 per cent at 11.16 yuan.
— Georgina Lee


Hong Kong and China stocks open lower, news on US probe of three Chinese banks continues to drag down indexes

T. Rowe Price investment analysts remain cautiously positive in their outlook about global economies and financial markets in the second half of the year. But escalating trade disputes and populist politics in many regions have created notable downside risks, they warn.
“If there’s one thing that would make us change our generally cautious stance on global growth, it would be if China increases stimulus again,” said Justin Thomson, portfolio manager and chief investment officer, equity.
The trade war is the big wild card. 
“There seems to be a resolve in the U.S. to reject a deal with China that would be perceived as weak. As such, there may be more pain before we reach a point where there is a greater sense of urgency,” said Rob Sharps, head of investments and group chief investment officer. “A lot depends on a resolution of the trade war and on the emergence of green shoots of improving global economic and earnings growth. If we get those things, we could see the U.S. equity market make new highs. If not, expectations for 2020 clearly will need to come down.
T. Rowe Price manages US$1.07 trillion in assets.
— Deb Price 


T. Rowe Price remains cautiously positive in outlook about global economies, financial markets

Everbright Sun Hung Kai brokerage sees an opportunity for traders behind the headlines out of the US that caused shares of several Chinese banks to tumble Tuesday.
Calling the reaction knee-jerk, the brokerage upgraded China Merchant Bank (3968 HK) to buy and maintained its target price of HK$43.43. The stock slid more than 7 per cent on Tuesday. In early trading today, it is down 0.78 per cent to HK$38.20.
“We think Washington Post-driven selling presents trading buy opportunity”, analysts including Timothy Mak wrote in the note.
Mainland Chinese commercial banks China Merchants Bank, Bank of Communications and Shanghai Pudong Development Bank  on Tuesday dismissed allegations they were in possible breach of US sanctions against North Korea.  (Read full story here.)
The brokerage said Shanghai Pudong Development Bank (60000 CH) might not be immediately cut off from the US financial system, as has been raised.
“We believe the primary consideration so far is imposing a fine that inflicts enough financial pain to induce compliance in responding to grand jury subpoena for documents,” Everbright Sun Hung Kai said, citing sanctions initially at US$50,000 per day after its reading of previous related US court documents.
In China, China Merchants Bank (600036 CH) in Shanghai was down 1.44 per cent, at 35.61 yuan, and was the biggest loser in index point terms for the Shanghai Composite Index in early morning trades. Shanghai Pudong Development Bank was up 0.26 per cent at 11.69 yuan. Bank of Communications (601328 CH) was up 0.33 per cent at 6.12 yuan.
— Georgina Lee 


Crystal Ball: 'Knee-jerk' reaction to US probe presents 'buy' opportunity for China Merchants Bank, says brokerage Everbright

CSC Financial (601066 CH) plunged to the daily 10-per cent lower limit, at 23.83 yuan, after it said in a stock exchange announcement Tuesday after market close that Citic Securities (600030 CH) plans to sell all of its holdings of 427 million A shares, or a 5.58 per cent stake, in it.
The disposal will start this mid-July and go up to January 2020. Citic Securities, one of the biggest brokerages in China, did not cite specific reason for the disposal, but Citic Securities had held the 5.58 per cent stake in CSC Financial prior to the latter’s initial public offering and listing on the Shanghai stock exchange in June 2018. (Read full story here.)
Also listed in Hong Kong, CSC Financial (6066 HK) was down 1.87 per cent to HK$5.78. Citic Securities was trading flat at 23.48 yuan in Shanghai.
— Georgina Lee


CSC Financial plunges 10 per cent after Citic Securities’ planned sale of stake

Bank of America Merrill Lynch expects a cease-fire to be agreed on Saturday. That's when presidents Xi Jinping and Donald Trump are expected to sit down to discuss trade.
"We think risk assets will react positively in the short run to a delay in the tail risk of a full-blown trade war, especially given the backdrop of increasingly accommodative global monetary policy," global economists Aditya Bhave and Ethan S. Harris write. "In the medium term, however, the trade war will likely continue to erode business confidence, weighing on the US, China and regions caught in the crossfire, such as Asia-Pacific and Europe."
The economists note the two sides appear far apart, meaning no big trade deal. And, tech issues, such as the Huawei blacklisting and possibility on China's part of a rare earths export embargo, make deal-making more complicated.
"Another reason to fade the chances of a breakthrough is that the US administration is not under much pressure to compromise at the moment. Our framework for the trade war has consistently been 'no pain, no deal.' With the stock market near its all-time high, markets expecting a strong 'Powell put' and GDP growth running at more than 3% (year-on-year), the US is likely to try to drive a hard bargain. Like it or not, the Fed's dovish message of offsetting downside risks encourages trade war escalation."
While there is a "modest positive" for risk assets in the short run, the economists see problems growing further on.
"The medium-term story is different for the US, China and countries caught in the cross fire. Trade-war uncertainty is already eating away at business confidence and the equity market is only being held up by the promise of very aggressive policy easing in both the US and China. We still expect some further slowing in both economies even without major escalation. This means more weakness in Asia Pacific and helps prevent a recovery in Europe. Enjoy the truce while it lasts," they write.
— Deb Price
 


Crystal Ball: A Xi-Trump trade truce would boost markets, says BofA Merrill Lynch

Profit-taking weighed down selective gold stocks in China this morning. 
After the sector racked up gains over the past two days, a gauge tracking 31 gold-related stocks was down 4.07 per cent.
Those that hit their daily 10-per cent upside limit on Tuesday saw investors take profit, with Chifeng Jilong Gold Mining (600988 CH) down 2.52 per cent at 6.19 yuan, and Eastern Gold Jade (600086 CH) down 6.17 per cent at 4.56 yuan. Henan Yuguang Gold & Lead (600531 CH) fell 8.84 per cent to 5.26 yuan.
Spot gold was quoted at US$1,407.06, falling 1.15 per cent from US$1,423.44. Gold has been on fire of late. (Read full story here on analysts assessing gold's prospects.)
Andy Wong, multi-asset senior investment manager at Pictet Asset Management, said gold and gold producers have formed a core part of their investment theme since quarter three of 2018 as a hedge to rising volatility and geopolitical uncertainties.
“With the European Central Bank and other global central banks renewing the push of easing policies, trust for fiat currencies may be lowered. Diversifying positions from the dollar is positive for gold,” he writes in a new note.
Wong sees value in gold producers as an alternative to bullion bars and says gold mining stocks are a good value.

— Georgina Lee 


Profit-taking weighs on gold-related stocks in China, but Pictet sees value as hedge 

Shares of Smartac Group China (0395 HK) plunged 35.87 per cent after the Hong Kong securities watchdog ordered 14 brokers to freeze client accounts linked to suspected manipulation of the shares of the IT solutions provider.
Smartac was trading at HK$0.20  — its lowest level since November 7, 2018.
The suspected manipulation of shares occurred between October 2018 and March 2019, the Securities and Futures Commission (SFC) said in a notice on Tuesday after market close.
The SFC’s restriction notice restricts the brokers from disposing of or dealing with any assets in the client accounts suspected of stock manipulation.  These brokers are cooperating with the SFC’s ongoing investigation.
In a separate restriction notice issued to nine brokers also on Tuesday, the SFC also restricted these brokers from dealing with or processing assets held in client accounts linked to another suspected market manipulation in the shares of China Ding Yi Feng Holdings (0612 HK) between 2018 and early 2019. China Ding Yi Feng, whose shares have been suspended since March 8,  owned 3.5 per cent of Smartac, according to its 2018 annual report.
Formerly known as China Investment Fund International Holdings, China Ding Yi Feng is a Hong Kong-based investment holding company principally engaged in private equity, venture capital investing and short-term trading of securities, both listed and unlisted.
— Georgina Lee


Smartac Group shares plunge to 7-month low after HK regulator orders brokers to freeze accounts linked with suspected manipulation

Standard Chartered is removing a fee on the minimum balance among its retail customers in Hong Kong, becoming the last among the city's three currency-issuing banks to do so.
The move was preceded last week by HSBC and Bank of China (Hong Kong), which announced they were waiving their minimum balance fees.
"The development is credit negative for the banks because it will reduce their revenue and profit," Moody's financial institution analysts wrote in an e-mailed commentary. "We expect that the financial effect of the fees' removal will be greater for BOC HK than HSBC HK because BOC HK's retail business is concentrated in Hong Kong, while HSBC HK's retail banking business is spread across the Asia-Pacific region."
— Eugene Tang 


Standard Chartered removes fee on minimum balances 

Makers of infant formula in China rose, after the State Administration of Industry and Commerce said in its consultation paper issued today that it proposed to further tighten registration rules for makers of infant formula. Some of these proposals include imposing heavier penalties on offenders, such as those that resell and lease out their approved registration certificates to unqualified makers.
Counterfeit infant formula has been a big issue in China. Scandals such as one in 2008 in which melamine-laced formula killed infants hurt confidence in the sector.
Xinjiang Tianrun Dairy (600419 CH) rose 6.16 per cent, to 16.03 yuan; Beingmate Baby & Child Food (002570 CH) rose 5.85 per cent to 6.7 yuan; New Hope Dairy (002946 CH) rose 4.76 per cent to 15.2 yuan; and Beijing Sanyuan Foods  (600429 CH) rose 2.59 per cent to 5.95 yuan.
— Georgina Lee 


Infant formula makers in China rise on proposal to tighten formula registration rules

Health care and energy stocks are capping losses on the Shanghai benchmark, which is down about 0.3 per cent.
First Tractor (601038 CH), which hit or nearly hit the 10 per cent upside limit for seven straight trading days, saw profit taking that put it down about 3.6 per cent at 11.44 yuan. The maker of  tractors and harvesting machines has been on fire since mid-June, nearly doubling since June 14 when it traded at 6.09 yuan to Tuesday's close.
Kweichow Moutai (6000519 CH) has regained some ground of the day's losses, and was most recently down 0.7 per cent to 976.35 yuan. The maker of potent baijiu liquor, one of the most popular stocks traded on the Hong Kong-Shanghai Stock Connect, was down as low as 971.90 yuan at 9:59 this morning. It is up 63 per cent for the year. 

The CSI 300 of large caps traded in Shanghai and Shenzhen is down slightly by 0.2 per cent. The Shenzhen Composite Index was up a teensy bit, by 0.07 per cent, helped mostly by health care and information technology.
-- Deb Price 
 


Health care sector capping losses on Shanghai benchmark

Health care stocks were up in the morning trade session by 3.2 per cent, the most of any sector on the Hang Seng Index. The index showing the tiniest of gains.
Information technology stocks were up 1.5 per cent. Decliners included real estate, utilities and energy.
Many developers fell, led by Sun Hung Kai Properties (16 HK), which fell 1.7 per cent in the morning session. New Word Development (17 HK) dropped 1 per cent, while Hang Lung Properties (101 HK) fell 1.3 per cent and Henderson Land Development (12 HK) dropped 1.2 per cent.
J.P. Morgan, in a note dated June 16, warned investors about getting "too carried away" about the potential US rate cut boosting property stocks. Overnight, Federal Reserve Chairman Jerome Powell reiterated signals the Fed is prepared to cut rates at some point due to weakness in the economy and trade uncertainties.  
"The momentum of China GDP growth is a far more important driver of stock prices," the property team led by Cusson Leung wrote. "We prefer the distressed valuation of Kerry Properties, the (public-private partnership) farmland conversion story of Henderson land and the extremely high cash content of Sino Land."
Watch Cusson Leung discuss opportunities and headwinds in Hong Kong's property market.

— Deb Price  
 


Health care and information technology helping Hang Seng

Shenzhen-listed First Capital Securities (002797 CH) said in an exchange filing late Tuesday that Nenking Group will reduce its stake in the brokerage by up to 3 per cent, from currently 8.49 per cent, involving a total of about 105 million shares. That would leave Nenking with about a 5.5 per cent stake at the high end. 
News of the disposal comes as another brokerage, CSC Financial, announced a divestment plan by its fourth-largest parent, Citic Securities.
First Capital Securities was down 3.33 per cent, at 6.38 yuan. Other brokerages also came under selling pressure, with ChinaLin Securities (002945CH) down 9.98 per cent, at 19.31 yuan, Tianfeng Securities (601162 CH)  down 7.45 per cent, at 10.68 yuan, and China Galaxy Securities (601881 CH)  down 5.87 per cent, at 11.86 yuan.
The stake sale of Chinese brokerages by their substantial shareholders is adding to the investors’ fear that the gains on Chinese stocks, the world’s best-performing equity market this year, may have outpaced their potential earnings. A gauge tracking 45 brokerages in China was down 2.9 per cent today.
— Georgina Lee 
 


 Chinese brokerages continue to fall

Bosideng International's defense of itself against claims made by short-seller Bonitas Research calmed some investors.
On Monday, the Chinese down-jacket maker (3998 HK) asked for its shares to temporarily be suspended from trading. They had fallen nearly 25 per cent after Bonitas accused it of overstating revenues and profits, among other things. The company issued a statement on Tuesday denying Bonitas claims, calling them malicious. The stock ended up 15 per cent.
But Bonitas issued another note today saying Bosideng didn't offer substantive evidence to refute its claims. The short-seller, which says the stock is worthless, offered what it described as new evidence to back up its accusations. It said Bosideng fabricated at least 807 million yuan (US$117 million) in net profits and "siphoned out RMB 2 billion via multiple brand acquisitions  from undisclosed insiders."

Bosideng, in addition to dismissing the short-seller's claims, has threatened to sue.
Citic Securities said share price could jump 43 per cent from Tuesday's close, saying the company has a solid business outlook and cheaper valuation than peers, according to a report by Bloomberg.  It initiated coverage today of the stock as a buy with a price target of HK$2.84. It was last trading down 1 per cent, at HK$1.97. 
Of the 12 analysts previously covering the stock and tracked by Bloomberg, all rate it a buy, with a consensus price target of HK$2.52. 
— Deb Price 


 Short-seller again slams Chinese jacket maker Bosideng

Chinese consumer stocks are set to do well in the second half of the year as the sector is set to benefit from the rise of the nation's middle class in the long run, said Lynda Zhou, a fund manager at Fidelity International, at a briefing in Shanghai today.
She also said China's stocks are still attractive because valuations are below the historical average and corporate earnings are expected to grow faster than those on other major global markets.
— Zhang Shidong 


Chinese consumer stocks will likely do well in second half, says Fidelity International fund manager

Brokers weighed on the Shanghai Composite Index, which ended  lower for the second straight day this week. The benchmark closed down 0.19 per cent, or 5.79 points, at 2,976.28.
News about substantial shareholders of brokerages divesting their stakes dragged down the sector. A gauge tracking 45 brokerages listed in China was down 3.2 per cent.
CSC Financial (601066 CH) plunged to the daily 10 per cent lower limit, to 23.83 yuan, after it said in an exchange filing Tuesday that its fourth-largest shareholder, Citic Securities (600030 CH),  plans to sell all of its holding of 427 million A shares, or a 5.58 per cent stake, starting in July.  Citic Securities was down 0.81 per cent at 23.29 yuan.
Shenzhen-listed First Capital Securities (002797 CH) ended 3.79 per cent lower, at 6.35 yuan, after it divulged that its shareholder Nenking Group will reduce its stake in the brokerage by up to 3 per cent, down from 8.49 per cent currently.
The CSI 300, which tracks blue chips listed in Shanghai and Shenzhen, was also down 0.18 per cent, or 6.98 points at 3,794.33, weighed down by banks and financials.
China Merchants Bank (600036 CH) was down 1.83 per cent at 35.47 yuan, and China Everbright Bank (601818 CH) fell 0.78 per cent, at 3.83 yuan. The sector continued to be dragged down by a Washington Post article earlier this week saying a US judge held them in contempt for refusing to comply with probes into violations of sanctions against North Korea. The banks dismissed the report, saying they were not involved in any investigations related to a possible breach of the sanctions.
“Their falls were more a knee-jerk reaction from investors. And I don’t think this can be seen as the US trying to use the probe to increase their bargaining chip with Beijing in the upcoming G20 Summit, where president Xi Jinping and President Donald Trump will meet,” said Alex Wong, a director at Ample Finance Group.
— Georgina Lee


Shanghai index ends lower as brokerages fall 

Traders in mainland China and Hong Kong saw health care today as a “safe haven,” said Louis Tse Ming-kwong, managing director of VC Asset Management. 
“Now, not many sectors would be chosen by investors during trade disputes,” Tse said.
Jinxin Fertility Group  (1951 HK), a fertility services provider in China and the US that debuted in Hong Kong on Tuesday, ended up 5.4 per cent to HK$9.78. 
“This pulled up the existing healthcare sector,” Tse added.

— Joy Pamnani 


Health care was safe haven for traders, says Louis Tse Ming-kwong, managing director of VC Asset Management

Chinese banks — which tumbled Tuesday after a news report tied three of them into a court case looking at alleged North Korean sanctions violations — helped the Hang Seng Index close in positive territory. It ended ahead by 0.13 per cent at 28,221.38. 
The three banks in the spotlight — China Merchants Bank, Bank of Communications and Shanghai Pudong Development Bank — denied involvement in any sanctions violations. 
China Construction Bank (939 HK) gained 0.9 per cent, to HK$6.57, making it the top gainer in index point terms on the Hang Seng. Ping An Insurance rose 0.75 per cent to HK$93.35.
Elsewhere, gains in pharmaceutical stocks also helped the Hang Seng. CSPC Pharmaceutical (1093 HK) was up 3.5 per cent to HK$12.46, while Sino Biopharmaceutical rose 2.8 per cent to HK$8.04. Their gains also helped bolster the Hang Seng China Enterprises Index, which ended up 0.2 per cent at 10,763.38.
Property stocks capped gains. Sun Hung Kai properties was down 2.3 per cent at HK$131.40, while China Resources Land closed down 1 per cent at HK$34.15.
Alex Wong, a director at Ample Finance Group, said if the meeting between presidents Xi Jinping and Donald Trump doesn't fall apart into further deterioration in the US China trade war, he sees the Hang Seng poised for a recovery to the 29,200-to-29,500 level next week.
— Georgina Lee 


Hang Seng Index closes higher on Chinese banks and selective pharma stocks