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Zhang Shidong

Deb Price

Good day, traders —
Catch up on the latest action in Hong Kong and mainland markets below.
— Deb Price in Hong Kong and Zhang Shidong in Shanghai


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Stocks

Stocks Blog: Trump issues mixed messages on trade, weighing down sentiment in China, Hong Kong markets

A Chinese investor uses a mobile phone to check stock prices at a securities brokerage house in Beijing on June 13, 2019. Photo: EPA-EFE

Business

Markets

Can Kweichow Moutai get back its spirits?
Trump says China would be world's top economy if he weren't president


Are shares of China liquor king Kweichow Moutai too expensive? 


Hong Kong stock exchange

China stock market

Live

* Overnight markets/ What futures foretell
 -- Overnight in US markets, the S&P 500 dropped 0.3 per cent, the Nasdaq fell 0.4 per cent, and the Dow Industrials slipped 0.1 per cent
 -- Hong Kong futures were less than 0.1 per cent higher, while the China A50 futures slid 0.1 per cent
* IPO debuts: none
* Economic statistics/Central Bank action: nothing major
* Corporate events: earnings, meetings, news conferences
-- Premier Li Keqiang said China’s economy was facing downward pressure and the government would fine-tune policies when needed.
-- Liquor giant Kweichow Moutai is due to release first-half earnings today and Hangzhou Hikvision Digital Technology, China’s biggest maker of surveillance cameras, is expected to issue the interim result on Friday.
Good reads: After years betting solely on Kweichow Moutai, money manager Dong Baozhen is diversifying, and is moving into bank stocks.


Morning guidance 

After years betting solely on Kweichow Moutai, Dong Baozhen is diversifying.
The money manager’s flagship fund has returned 785 per cent since its inception in 2010. He trounced the Shanghai Composite Index’s 14 per cent gain by owning just the one stock, sticking with Moutai as it became the world’s most valuable distiller. But Dong, a partner at Beijing Lingtongshengtai Asset Management, sees any price above 700 yuan (US$102) as excessive. Moutai last closed at 968 yuan.
Dong, who recognises Moutai was a “once in a millennium” trade for him, started swapping some of those shares for Chinese commercial lenders in 2018, and has recently added leverage. His fund has posted a 54 per cent gain this year, according to data from Shenzhen PaiPaiWang Investment & Management, which tracks private funds such as Dong’s.
“This is a historic opportunity,” said Dong, referring to banks’ low valuations. He declined to disclose the exact size of his fund. “Money is up for grabs, but the market has not yet responded as it should to a substantial recovery in banks’ financials in the first quarter.”
Dong said he prefers commercial banks because he sees signs bad loan ratios are starting to drop. He also cited the sector’s improving profitability, as well as double-digit growth in revenue from lenders’ core business as reasons for optimism. The eight listed joint stock commercial banks trade at an average of about 6.6 times projected earnings for this year, according to data compiled by Bloomberg.
As for Moutai, Dong says it’s time to move on. The distiller is trading at 28 times this year’s earnings, which is near the highest since January 2018 and a valuation some investors may see as signalling it’s getting expensive.
Read full story by Bloomberg here. 


Time to move on from Kweichow Moutai, says money manager who made 785 per cent return

US president Donald Trump shared a lot of thoughts about China in a Cabinet meeting overnight. His remarks sent US markets tumbling. His trade war on China has of course been one of the biggest dampeners on stock values in mainland China and Hong Kong.
Here is part of what he said, with some emphasis put in italics. Oh, and by the way, China says it didn't break any trade deal.
"You read yesterday where China is down very substantially.  They’re having the worst year they’ve had in 27 years.  I don’t want to have them have bad years.  But we made a deal and they broke the deal on me.  The deal was done.  It was practically done.  It was just like a very short period of time, we would’ve had it finished.  And they broke the deal.  They decided they didn’t want to do the things that they had agreed to. ...  
"And in China, the rates are whatever President Xi wants.  He’s his own Fed.  He’s the Federal Reserve.  He’s — one man.  He’s the Federal Reserve.  He’s the President.  He’s everything else.
"But, unfortunately, what they did was not appropriate. They are supposed to be buying farm products.  Let’s see whether or not they do.
"... And we have a long way to go as far as tariffs, where China is concerned, if we want.  We have another $325 billion that we can put a tariff on if we want.
"So we’re talking to China about a deal.  But I wish they didn’t break the deal that we had.  We had a deal where China opened up.  We had a deal where there’d be — intellectual property theft would be taken care of ...
"... Once the World Trade Organization was formed, China became like a rocket ship.
"... If my opponent had won, China would right now be number one in the world.  Right now, we’re number one in the world, by far.  We’re going to keep it that way.  And if you have smart people sitting in this chair, in this position, you’re not going to lose.
"But now we’re doing something about it.  Now we’re doing something about it.  And — we’re doing a lot about it." 
— Deb Price 
 


Trump says China would be world's top economy if he weren't president

Markets are still looking for a catalyst.
Although US President Donald Trump overnight threatened additional tariffs on Chinese imports, traders pretty much yawned because they have gotten so used to his threats.
In early trading, the Shanghai Composite Index dropped 0.1 per cent at the open while Hong Kong’s Hang Seng Index dropped 0.5 per cent.
Traders should be watching liquor distiller Kweichow Moutai (600519 CH), which is due to release its first-half result after the market closes today. 
— Zhang Shidong 


Light news flow leaves Chinese stocks with no direction

Record stock prices and rosy earnings growth are what investors often use for China’s baijiu sector.
But that is not the case for Anhui Golden Seed Winery (600199 CH).
The Shanghai-listed distiller surprised the market by saying that it probably posted a net loss of as much as 36 million yuan (US$5.23 million) in the first half. One of the reasons the company cited for being unprofitable was that sales of its products with prices below 100 yuan contracted amid consumption upgrade, a phenomenon referring to consumers opting for upscale products instead of cheap ones.
The shares tumbled 7.1 per cent to 6.96 yuan today, heading for the biggest drop since May.
-- Zhang Shidong


This Chinese liquor distiller is a victim of consumption upgrade

It's not a great start for the Hang Seng Index.
Most sectors are down except consumer discretionary, industrials, communication services and information technology. Leading losses is the energy sector.
Geely Automobile Holdings (175 HK) is the top percentage gainer, shooting up 3.37 per cent to HK$12.26. No clear news is driving the jump. But the stock is heading toward a third straight day of gains after some nasty falls of late after it issued a profit alert on July 8, warning it expects its first-half earnings will be down 40 per cent.
Analysts are very mixed on Geely. Of those tracked by Bloomberg, 22 have it as a "buy," 14 as a "hold," and four as a "sell," with a consensus target price of HK13.38.
That profit alert triggered a downgrade to neutral from overweight by J.P Morgan, which also reduced the target price for Geely to HK$12 from HK$18. J.P.Morgan said it prefers electric and premium car players, like BYD (1211 HK, 002594 CH).
Geely closed at a recent high of HK$18.82 on April 17, and it has been speeding downward ever since.
Others with gains include index heavyweight Tencent (700 HK), up 0.4 per cent to HK$364.
CNOOC (883 HK), a major player in China oil and natural gas, is the top loser in early trading.
The energy sector always faces a huge stew of issues. Right now, we are entering the tropical storm season, which can threaten supplies. Demand soars from summer driving. Meanwhile, Iran is adding geopolitical risks, although oil slid overnight for the second day on signals by the US it is open to talks. US stockpiles are up, and US president Donald Trump's latest China tariff threat raises concerns about demand.
CCB International analysts Cathy Chan and Felix Lam in a note on July 12 said CNOOC is their top oil pick "thanks to its highest earnings sensitivity to oil prices and improving production growth profile." It has CNOOC as overweight, with a target price of HK$17.50.
CNOOC is trading down 2 per cent at HK$13/14.
The Hang Seng is trading down 0.5 per cent at 28,471.53. 
— Deb Price
 


Hang Seng's morning isn't getting any better, but Geely is accelerating 

Lots of eyes today on liquor giant Kweichow Moutai (600519 CH).
It's the high-flyer that is very fond of setting records, including becoming the first Chinese stock to close above 1,000 yuan on July 1. But that milestone got traders thinking about whether it was time to leave the party.
Look to Tuesday, which saw more selling than buying of the stock on the Hong Kong-Shanghai Stock Connect, where it was the most traded stock in terms of turnover in yuan. Traders bought about 439 million yuan worth of the stock, and sold a bit more, at 444 million yuan.
On Monday, when it was also the top turnover stock, selling far outpaced buying. 
On July 12, the famous baijiu maker reported it expected profits to rise 26 per cent in the first half from the year before, soundly beating the 21 per cent growth expected by analysts for all of 2019. A key risk to it is weaker consumer sentiment amid the seemingly endless US-China trade fight. 
Analysts still love the stock, with 40 calling it a buy, two a hold and none a sell. Their consensus target price is 1,060.45 yuan. 
It had a slew of new ratings after it released its profits expectations. Allen Cheng of Morningstar, who had been the sole analyst with a sell rating, upgraded Kweichow Moutai to hold on Tuesday. Others maintained their buy/outperform ratings in recent days, including Credit Suisse and Macquarie. 
It reports after market close. 

 
 
— Deb Price


Can Kweichow Moutai get back its spirits?

The Shanghai Composite has barely budged today, though gold-linked stocks are hurting.
Gold-linked stocks fell as the yellow metal lost ground, falling 0.1 per cent to US$1,404.89.
Zhongjin Gold (600489 CH) dropped 1.8 per cent to 9.29 yuan; Gansu Gangtai Holding (600687 CH) fell 2.8 per cent to 2.05 yuan; YanTai Yuancheng Gold (600766 CH)  fell 1.8 per cent to 8.73 yuan, and  Shandong Gold Mining (600547 CH) slid 2.6 per cent to 39.81 yuan.
The Shanghai Composite is barely down, dipping 0.05 per cent to 2,936.
Six companies hit or nearly hit the 10 per cent upside daily limit. They include IRICO Display Devices (600707 CH), which makes color display devices which it markets in China,  Zhengping Road and Bridge Construction (603843 CH), whose name sums its focus up quite nicely, and
Hunan New Wellful (600975 CH), a pig trader. 
Seazen Holdings, linked to billionaire Wang Zhenhua who was arrested for allegedly molesting a nine-year-old girl, is up 3.2 per cent to 29.69. That puts it on track for its second straight day of solid gains, after it collapsed on news surfacing July 3 of the arrest of Wang, one of China's richest men.
 
— Deb Price 


Gold-linked stocks fall in Shanghai

It's a good time to take a look at consumption stocks, says Kenny Tang Sing-hing, chief executive at Royston Securities.
"Domestic consumption stocks may outperform in the second half [of the year]. The economic data from China indicates that retail sales have improved in the last month," he said.
"And due to the trade war, the Chinese government is likely to stimulate domestic consumption in the second half, which accounts for 60 per cent of the GDP growth, (serving as) a major momentum in China," Tang added.
Risk-adverse investors, however, should be wary of chasing after gains in market leader Kweichow Moutai (600519 CH). Tang called its valuation "very high".
"It is a good and famous brand, and a lot of players are putting a premium on it. Its price-to-earnings ratio is very high and trade price is quite volatile," he said.
"But it won't be down by much. Beer stocks trade at high valuations and this is an important brand in mainland China. Investors will pay a premium for the share price," he said.
Meanwhile, US President Donald Trump's tweets overnight yet again threatening tariffs on another $325 billion worth of Chinese exports have brought US-China trade uncertainty back to the fore.  Investors looking for a safe bet should focus on fundamentals, Tang said.
"Put more money on defensive and high-yield stocks, with low price-to-earning ratios and [healthy] cash flows."
On the domestic front, Tang said, "the market is waiting for the PBOC (People's Bank of China) or the China government to improve liquidity and put more money into the market".
"The earnings [this season] are not very good, but the market seems to have given chances as the economy was not too good" in the first half, he said.
With China's tax cut and monetary stimulus, US interest rate cuts and the global central bank "likely" to increase liquidity, Tang expects there may be some improvement in the second half.
— Daryl Choo 
 


Crystal Ball: Time to check out China consumer stocks, says Kenny Tang

Platt Nera International (1949 HK), a Thai IT solution company that was the best performer among the six IPOs debutantes on Tuesday, says Hong Kong stock market is an ideal fundraising hub for its international expansion plans.
Even though the company's core business is in Thailand, its chairman and chief executive Prapan Asvaplungprohm still opted to list in the city.
“We decided to list in Hong Kong as it is a very liquid market.  Hong Kong stock market is definitely the best place for Southeast Asia companies to raise funds as it is the largest capital market in the region," Asvaplungprohm told the South China Morning Post at the listing ceremony.
"We are not worried about the recent protests in Hong Kong, which is a short-term issue. It should be able to be resolved eventually.  Platt Nera's listing in Hong Kong is to meet with our long-term expansion plan to go global.  Our major business is providing IT solution for
Thailand financial firms, but we have started to expand in Malaysia, Indonesia and the Philippines," he said.
After the rally on debut, its share price has fallen 9.7 per cent today at HK$1.40. But that is still trading at a premium over its IPO offer price at HK$1.25.
Platt Nera ended its first trading day with a 24 per cent premium at HK$1.55.
— Enoch Yiu
 


Platt Nera International says Hong Kong is "definitely the best place" for listings by Southeast Asian companies 

Brilliance China Automotive Holdings (1114 HK) jumped 4.5 per cent to HK$9.33, after its exchange filing showed that shareholder Baillie Gifford bought additional shares totalling HK$149 million on July 12.
That brings the investment management firm's stake in the manufacturer of minibuses and sedans in China to 7.25 per cent from 6.91 per cent, Bloomberg reported. 
On Tuesday, Brilliance China shot up 5.56 per cent, after it disclosed it would hold a board meeting on July 25 to approve a special dividend.
— Deb Price 
 


Shares of Brilliance China speed up — again

Anhui Golden Seed Winery (600199 CH) was the top loser on the Shanghai Composite, falling by the downside 10 per cent limit to 6.75 yuan. It makes and sells beer and spirits.
It said it would likely report a net loss in the first half because sales of cheaper alcohol fell. The loss would be between 30 million yuan and 36 million yuan, it said. It had a net profit of 6 million yuan in the same period last year.
Consumers have been moving to more expensive drinks.
China's top liquor maker — Kweichow Moutai (600519 CH) — slipped 0.5 per cent to 963.50, amid growing concern the shares are too pricey. 
Seazon Holdings (601155 CH) regained some investors' confidence, closing up 6.5 per cent to 30.66 yuan. Its large shareholder Wang Zhenhua, one of China's richest men, was arrested for allegedly molesting a nine-year-old girl. It was Seazon's second straight day of gains. It  ended up 4.5 per cent on Tuesday.
Health care led losses, and energy shares were down. The Shanghai Composite Index closed down 0.2 per cent to 2,931.69.
On the Shenzhen Composite Index, information technology, real estate, and consumer staples led gains while communication services led losses.
Twenty companies hit or nearly hit the 10 per cent upside limit. The index ended ahead by 0.16 per cent, to 1,574.35.
— Deb Price 


Anhui Gold Seed ends up as big loser in Shanghai as drinkers move to expensive booze

There is still more room for gold to climb despite this year's surge, said Helen Lau, metals and mining research analyst at Argonaut.
"Going forward, I think there is a chance for gold price to go up a little bit more to $1,450 at the end of the year," she said. "Investors are waiting for the final interest rate cut by the Fed."
Gold is trading at US$1,404.68.
The market has already priced in expectations of an interest rate cut "a little bit" on signals given by US Federal Reserve chairman Jerome Powell, Lau said.
"For it to reach the $1,450 level, we need the actualisation of the Fed cuts. Before that, in the short-term, it will just trade in the 1,400 range."
"Another upside for gold is if the volatility of equity market increases, and there's some sell-off in the equity markets because of political reasons, or (US president Donald) Trump's stance against China."
The World Gold Council, a trade body formed by leading mining firms to promote demand, said last week that prices will, with some pullbacks, rally further, fuelled by two rounds of expected interest rate cuts in the US, geopolitical tensions between Washington and Iran, and the exit of Britain from the European Union.
A risk for gold would be the Fed not cutting rates.
Furthermore, "if the US economy heads up, no one will be interested to buy gold for protection", Lau added.
— Daryl Choo


Crystal Ball: Gold prices could reach US$1,450 on expected Fed cut, says Helen Lau

The Hang Seng ended down a bit, by 0.09 per cent at 28,593.17. That broke a streak of four straight days of gains.
Energy led losses. Concerns about excessive oil supply are weighing on markets.
Consumer staples and health care were also down. 
Geely Automobile (175 HK) was the top gainer, up 3 per cent to HK$12.22, while a number of property developers ended with gains as well. The top loser was pork processor WH Group (288 HK), which has struggled this year as African swine fever has rocked China, the world's biggest pig market. It fell 1.9 per cent to HK$7.8. China oil major CNOOC fell 1.79 per cent (883 HK), at HK13.18.  
— Deb Price
 


Hang Seng slips a teensy bit, ending four-day streak of gains

Global capital will flow from the US stock market into Asian markets in the second half of this year, after Wall Street recorded big gains in the first half, according to Jim McCafferty, joint head of APAC equity research at Nomura.
"Our strongest conviction this year is the rotation of capital from the US into the Asian markets," said McCafferty at a press conference.
Attractive valuations in the China and Japan markets and strong earnings growth estimates in Asian countries will naturally drive the change, he said.
The prospective price-to-earnings ratio of MSCI China Index is only 11.5 times, compared to 18 times for the MSCI USA Index. But 2019 forward earnings growth estimates suggest a 21 per cent expansion in the China gauge, versus a mere 2.7 per cent for the US index, according to McCafferty.
The increasing weighting of Chinese A shares in the MSCI global indices this year will also be a pull factor.
In Japan, corporates are facing rising shareholder activism that could lead to more buy back activities, which will buoy share prices, he said.
The MSCI USA Index surged 21 per cent in the first half of 2019, making it the best-performing global major index in the period. McCafferty said the rally was mainly the result of companies buying back shares based on their strong balance sheets.
— Yujing Liu 


Money to flow from the US into Asian stocks, says Nomura

Hong Kong’s local brands are supporting the Hang Seng Index through global geopolitical tensions, according to Iris Pang, greater China economist at ING Bank.
“During the 2018-2019 trade and technology war, A-shares are performing worse than the [Hang Seng]. There are some fundamental differences between [the two],” Pang said at a media briefing.
The Hang Seng holds some “long-time local brands that support it,” said Pang. Without naming companies, she highlighted local Hong Kong real estate developers as an example.
“But for A-shares, they are all Chinese companies – some are tech, export-related, consumption-related,” she said, citing sectors that have been particularly hit during the tensions. Though some consumption stocks, like liquor, have seen huge jumps, it is not the case for all.
The healthcare sub-index has dropped from 10,252.59 at the end of March, to 9487.74 through June, said Pang. Meanwhile, she said, the consumer discretionary sub index has shown “slackness” in May, down 8 per cent month-on-month, despite it being a holiday month.
Since March 2018, when the trade war started to emerge, to last close, Hong Kong’s Hang Seng has lost 6 per cent, while China’s main bourse, the Shanghai Composite, has dropped 9 per cent.
The CSI 300 of large caps has, however, fallen a lesser 4.27 per cent.
— Louise Moon 
 


 Hang Seng boosted by local brands, says economist at ING Bank

China’s list of foreign companies it sees as posing a national security risk will rock US stock markets upon release, said Iris Pang, greater China economist at ING Bank.
On the day of release, Pang predicts US stocks will drop 3 per cent, while Chinese A-shares will fall 1 per cent.
“This is really a fighting time between the US and A-shares,” said ING’s Pang.
In June, China announced plans to release a list that will feature foreign companies, organisations and individuals it has concluded pose a national security risk or have damaged the interests of Chinese businesses by blocking, or cutting supplies for non-commercial purposes.
It marks a reaction to the US blacklisting Chinese firms including Huawei. Though the list is expected soon, it is unclear when it will be released.While the US’ Dow Jones and China’s CSI 300 of large stocks in Shanghai and Shenzhen have shown similar performance this year, said Pang while citing Bloomberg data, she expects “the reverse when China puts the unreliable entity list on the table.”
“There are at least five US companies that could be on the unreliable entity list, and they are all listed in the US, so they will be affected. From there, we will see the Dow falling,” she said. “Of course China will also fall, but to a lesser extent.”
Though she did not name the companies, ING said FedEx is one that investors think may be on it.
— Louise Moon


'Fighting time' ahead between US, China shares when Beijing puts out its list of risky foreign companies, says ING bank economist

Stocks Blog: Trump issues mixed messages on trade, weighing down sentiment in China, Hong Kong markets

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}Can Kweichow Moutai get back its spirits? Trump says China would be world's top economy if he weren't president

Can Kweichow Moutai get back its spirits?

Trump says China would be world's top economy if he weren't president