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Yujing Liu

Deb Price

Happy Friday, traders -- 
Catch up below on today's action in mainland and Hong Kong markets. If you have any feedback, please ship it to deb.price@scmp.com as we work to make our live stocks blog your must read for market news in our part of the world.
— Yujing Liu and Deb Price in Hong Kong 
 


Stocks Blog: Hang Seng suffers biggest weekly loss in two months 

Business

Markets

Shanghai sees best weekly performance since June 21
Next two months 'critical' to Hong Kong amid ongoing protests, Daiwa says


Shanghai Composite Index sees best week since June 21 


Stocks

China stock market

Hong Kong Stock Exchange

Live

The number of Chinese property developers going out of business as they find themselves struggling to borrow money amid a slowing economy has gone up by half, according to official figures.
So far this year, 274 builders have filed for bankruptcy, a rise of 50 per cent from a year ago, according to the website of the People’s Court Daily, a state-owned publication.
A recent, high-profile example was Yinyi Group, a developer in the Chinese port city of Ningbo, which filed for bankruptcy reorganisation in June after it failed to pay back 300 million yuan in debt issued three years ago.
Although the numbers are only a tiny fraction of the estimated 100,000 developers in mainland China, concern is growing that defaults and bankruptcies will only increase. China’s economy expanded 6.2 per cent in the three months ending in June, the slowest quarterly pace since records began in 1992.
“Everyone, from home buyers to savvy investors, is worried about developers’ cash flow,” said Yan Yuejin, a research director with Shanghai-based property services firm E-House China R&D Institute.
Home builders have found it harder and harder to access their traditional sources of credit as Beijing has sought to clamp down on high debt levels.
Read full story by Pearl Liu here 
 


Bankruptcies among Chinese developers going up

Investors and business owners in the Asia-Pacific region have grown more cautious about the global growth outlook as concerns have increased about the ongoing trade war between the United States and China, according to a new survey conducted by UBS.
About 55 per cent of respondents expressed confidence in the global economic outlook over the next 12 months, down from 59 per cent of those surveyed at the end of the first quarter, UBS said. The survey canvassed more than 3,800 high-net-worth individuals in 17 global markets, including nine in Asia, in June and early July.
The vast majority – 80 per cent – are concerned about market volatility caused by the trade tensions and 83 per cent are worried about a potential decline in the markets, the survey found.
The trade war was the top concern among the region’s investors, along with long-term competitiveness of their home country and cybersecurity, according to the survey.
Read full story by Chad Bray here. 
 


Wealthy Asians less confident about global economic outlook

Brainhole Technology (2203 HK) said it expects a 90 per cent drop in net profit for the first six months of the year, compared to the same period in 2018.
The investment holding company mainly engages in the assembly, packaging and sales of semiconductors, and said in a filing with the stock exchange overnight that a slowdown in orders because of the trade war was a key reason for the plunge in profits.
Another was the increase in labour costs, due to a labour shortage, and additional costs to cope with customers’ new technological standards and requirements, it said in the filing.
— Louise Moon 
 


Brainhole Technology expects 90 per cent drop in net profit in 1H

Here's what we are watching this morning:
Overnight markets/ What futures foretell
-- The US market fell on Thursday following some disappointing company results, led by energy and technology shares. The S&P 500 lost 0.5 per cent, the Nasdaq Composite dropped 1 per cent, and the Dow Jones Industrial Average was 0.5 per cent lower.
-- The Hang Seng Index Futures declined by 0.7 per cent, while the China A50 futures also fell 0.5 per cent.
IPO debuts:
-- Zhejiang Great Shengda Packing (603687 SH), a manufacturer of cardboard, will be traded in Shanghai for the first time. Shenzhen Colibri Technologies (002957 SZ), a developer of optical electromechanical automation systems, will debut in Shenzhen.
Economic statistics/Central Bank action:
None to note.
Corporate events:
-- Fortune REIT (778 HK), a Hong Kong-based real estate investment trust firm, will announce first-half results.
Good reads: As the US-China trade war transforms into a technology conflict, Chinese firms are increasingly seeking to develop new products and reduce their country’s reliance on a global supply chain, Jane Cai and Josephine Ma report. Eddie Yue Wai-man, who joined the Hong Kong Monetary Authority (HKMA) from its establishment in 1993, has been promoted to head the de facto central bank, Enoch Yiu reports.


Morning guidance 

Macau casino operator MGM China (2282 HK) recorded a 26 per cent jump in second-quarter revenue to US$706 million from the same period last year, in line with expectations of the analysts polled by Bloomberg.
The increase was mainly “a result of the continued ramp up of operations at MGM Cotai following its opening in February 2018 and an increase in main floor table games hold percentage,” the company said in a stock exchange filing today.
The Cotai Strip is the hot area of Macau that is undergoing a huge building and upgrading spurt, as casino operators scramble to attract so-called "mass" gamblers and get more revenue from hotel rooms, restaurants and retail. (Read story for investors on Macau casino stocks here.)
— Yujing Liu


MGM China Q2 result matches expectation

Sunac China (1918 HK), the country’s fourth-largest property developer by sales, expects its first-half net profit to grow by over 45 per cent from the same period last year, in a positive profit alert released by the stock exchange today.
Excluding the impact of losses on non-core business assets and other items, the profit increase could be as much as over 100 per cent year-on-year, according to the filing.
The company said the surge “was which was primarily due to the increase of the area delivered in the sales of properties during the period.”
— Yujing Liu


Sunac expects 45 per cent jump in first-half profit

Natural Food International Holding (1837 HK), a manufacturer of healthy food products made of grains, beans and nuts, surged by 22 per cent to HK$2.17 at the market open, after announcing American beverage giant PepsiCo will buy a 25.8 per cent stake to become the company’s second-largest shareholder.
PepsiCo has agreed to purchase 567 million shares, at HK$1.8 apiece, from three existing major shareholders of the company, according to a stock exchange filing today.
The purchase will be completed by July 30.
— Yujing Liu


Natural Food skyrockets on PepsiCo stake purchase

Markets in China and Hong Kong were under pressure as trading began, following overnight losses on Wall Street.
The Shanghai Composite Index fell 0.2 per cent to 2,930.53, while the Shenzhen Component Index dropped 0.3 per cent. The ChiNext Index of start-ups listed in Shenzhen declined 0.4 per cent.
As many as 20 of the 25 stocks listed on the new STAR board in Shanghai trended lower. Suzhou TZTEK Technology (688003 SH), a developer of automated warehouse and logistics system, led the decline, with a 7.3 per cent drop to 46.8 yuan. Prices of the STAR shares are allowed to move without limits today, which is the last of their first five days of trading. After today, they they will be subject to a 20 per cent daily cap.
The Hang Seng Index declined by 0.6 per cent to 28,411.3.
— Yujing Liu


China, Hong Kong markets drop in early trading

People.cn (603000 SH), operator of the online portal of Communist Party mouthpiece People’s Daily, surged by as much as 10 per cent to 17.9 yuan in morning trading, after releasing a three-year plan to become a leading content technology firm in the country.
The company aims to become the “most important content operation, risk management and distribution platform” on the Chinese internet by April 2022, the 10-year anniversary of the portal’s establishment, according to a stock exchange filing today.
The company has invested in artificial intelligence companies to tap into technology for better management of internet content, it said.
— Yujing Liu


Online portal of People's Daily surges on grand three-year plan

The US Federal Reserve is likely to cut interest rates by 25 basis points when a two-day policy meeting ends next Wednesday, according to Swiss private bank Pictet Wealth Management.
Pictet’s baseline scenario is that the Fed will cut rates again in September, and then keep rates unchanged.
Chairman Jerome Powell’s reasons for the expected rate cut next week will be especially important, because “the more unstructured and confused Powell’s explanations, the greater the risk of markets forcing the Fed into additional cuts in the coming year,” Thomas Costerg, senior US economist at Pictet, wrote in a note today.
“Our view is that the Fed is mostly cutting rates out of fear of US yield curve inversion, to keep a buffer with (and stay below) the theoretical neutral rate and lastly, out of residual regret about December 2018’s rate hike.
“But the Fed will likely argue it’s because of a hotchpotch of reasons, ranging from trade tensions, the weak global economy and the persistent tepidness of US inflation. In other words, it will defend the concept of ‘insurance’ against various risks as the Fed seeks to extend the elongated US business cycle. But the main risk is that Powell appears confused about what the Fed is doing.”
— Yujing Liu
 


Pictet expects 25 basis point rate cut by Fed next week, second cut in September

MGM China Holdings (2282) is staying in favour of analysts at J.P Morgan and SWS Research after posting a 26 percent second-quarter revenue jump in line with expectations.
J.P. Morgan maintained the Macau casino operator as an "overweight" with a target price of HK$17.50. It had boosted MGM China to overweight from neutral on June 5. SWS Research calls it a "buy" with its target rate at HK$19.10.
Overall, among analysts tracked by Bloomberg, 14 call it a buy, five a hold and one a sell, with a target price of HK$17.14. 
In a new note, Bloomberg Intelligence says its increased focus on the "mass market" — mom and pop gamblers as opposed to the big whale VIPs — and cost savings helped it record a 43 per cent profit surge in the second quarter, compared to a year ago. 
"Still, MGM Cotai's performance has been lackluster since its opening given MGM's limited experience on the Cotai strip and lack of a premium product. It debuted the ultra-luxury Mansion villas to try and lure high-rollers to boost revenue, yet this also resulted in VIP wager declines at its Peninsula property. Coupled with weakness in the VIP market, this may hamper its goal of accelerating revenue gains," Bloomberg Intelligence writes.
"Cotai's Ebitda (earnings before interest, taxes, depreciation, and amortization) contribution was 32 per cent of the total, far below rival Wynn Palace where Ebitda contribution exceeds 55 per cent," BI concludes.
MGM is trading up 0.58 per cent to HK$13.78. 
Stocks strategist Kenny Wen gives tips for investors looking at Macau stocks in this studio interview. 


— Deb Price

 


MGM China stays in favour at J.P. Morgan, SWS Research on earnings report  

Vitamin manufacturers climbed broadly, as rising vitamin prices overseas lifted investors’ hopes for better profits.
The main commercial use for vitamins is in animal feed and drugs.
Prices of vitamin A and vitamin E surged overseas recently as the global industry consolidated, and the supply of vitamin E by German chemical firm BASE is likely going to decrease or be suspended over the next few months because of an equipment failure, according to a report by brokerage Minsheng Securities published on Monday.
A gauge tracking 14 vitamin producers listed in Shanghai and Shenzhen jumped 3 per cent, with Brother Enterprises (002562 SZ) climbing by the 10 per cent daily limit to 4.86 yuan.
— Yujing Liu


Rising prices lift Chinese vitamin producers

A major shareholder of traditional Chinese medicine producer Yunnan Baiyao Group (000538 SZ) will cut its stake by 3 per cent, the company said in a stock exchange filing.
Ping An Insurance (601318  SH; 2318 HK), which owns 6.9 per cent of Yunnan Baiyao’s shares, plans to sell over 38 million shares it owns in the company over the next three months, according to the filing.
The selling price will be set based on market prices.
Yunnan Baiyao edged up by 0.2 per cent to 78.79 at lunch break before the announcement.
— Yujing Liu


Big shareholder of Yunnan Baiyao to cut stake

Chinese social media and gaming giant Tencent (700 HK) isn't playing around.
Its shares have picked up, partly due to the success of new games released in May, Perfect  World, one of China's top grossing games, and Peacekeeper Elite.  
Its first-quarter earnings disappointed investors in May, with sales rising 16 per cent over the period a year before, but mobile and PC game sales were down 2 per cent year-on-year. The stock hit a recent low of HK$322 on May 29. 
As of Thursday's close at HK$372.40, the share price had risen 15.7 per cent from that recent low. 
It's up today 0.70 per cent to HK$375 on the heels of HSBC, in a note circulated today, keeping it as a "buy" and boosting its target price to HK$464 from HK$458. 
HSBC held an online-ad expert call, which it says confirmed that Tencent's competitive advantages "continue to shine." Smartphone games are expected to see an upside in the second and third quarters, HSBC said. The downside risks are regulatory headwinds and the overall economic slowdown that could weigh on advertisers' budgets. 
Meanwhile, UOB Kay Hian today raised Tencent to a "buy" from "hold" and raised the price target to $HK437 from HK$400.
Tencent has a big fan base among analysts. Of those tracked by Bloomberg, 50 rate it a "buy," seven a "hold" and none a "sell."

 
— Deb Price 
 


Tencent is on a roll  

Losses in stocks listed on the new STAR technology board widened by lunch break, as investors get ready for the end of a five-session period in which they have been able to trade the stocks freely without caps on price movements.
Fujian Forecam Optics (688010), which specializes in cameras and optic components, led the decline with a 14 per cent loss to 67.6 yuan, which is still 168 per cent higher than its offering price of 25.22 yuan.
Out of the 25 stocks listed on the board, 22 declined in the morning session.
Traffic Control Technology (688015 SH) rose 3.7 per cent to 48.18 yuan, making it the top gainer so far. The stock is now trading 198 per cent higher than its offering price of 16.18 yuan.
— Yujing Liu


STAR stocks fall further, but still sky-high from offering prices

Stocks related to Shanghai’s free-trade zone shot up in afternoon trading, lifting up the Shanghai benchmark.
A gauge of 23 stocks related to the Shanghai Free Trade Zone jumped by as much as 3.4 per cent, with Shanghai Shine-Link International Logistics (603648 SH) surging by the 10 per cent daily limit.
Investors were buoyed by the US-China trade talks that begin next Tuesday, while a press conference today on the 100-day countdown to the second China International Import Expo in November also led to renewed enthusiasm.
The Shanghai Composite Index recouped losses in the morning session and rose, trading 0.3 per cent higher at 2,947.18.
— Yujing Liu 


Shanghai port-related stocks boost benchmark

The next 60 days leading to the 70th anniversary of China’s founding on October 1 will be critical to Hong Kong, which is facing “an unprecedented political crisis”, according to Daiwa Capital Markets.
Chief Executive Carrie Lam Cheng Yuet-ngor is under pressure to end the crisis over the period, Daiwa’s chief economist Kevin Lai wrote in a report published Thursday.
“China’s Communist Party under President Xi would like to make sure there are reasons in Hong Kong to celebrate the 70th anniversary of the People’s Republic of China. Having another one million people taking to the streets on October 1 would be undesirable for the party,” Lai wrote.
In Daiwa’s best-case scenario, the Hong Kong government will be able to solve the crisis by answering all or most of the five demands put forward by protesters, such as starting an independent investigation into police actions during the past demonstrations.
The worse-case scenario would be that the government adopts a more forceful approach against protesters, which will be “highly negative for Hong Kong’s economy and its [international financial centre] status”.
“Martial law or a state of emergency is not unthinkable … But the damage to the city would be severe and irreversible. The worst fear for many is the involvement of the People’s Liberation Army,” according to Lai.
— Yujing Liu 


Next two months 'critical' to Hong Kong amid ongoing protests, Daiwa says

The Hang Seng Index lost 1.3 per cent, or 367.66 points, over this week, which was its worst weekly performance since May 31.
The benchmark dropped 0.7 per cent to close at 28,397.74 today, snapping a three-session rally.
The market decline came after the European Central Bank held interest rates steady, contrary to expectations, which triggered worries over the global interest rate outlook for later this year.
Pharmaceuticals led the decline today, with CSPC Pharmaceutical Group (1093 HK) dropping by 2 per cent to HK$13.88. The stock has gained over 21 per cent since a recent low on June 14, as investors expect China’s tough drug procurement program to become more favourable to drugmakers than the industry feared in terms of profits.
Meanwhile, the Shanghai Composite Index rose 0.8 per cent, or 27.49 points, to record its largest weekly gain since June 21.
— Yujing Liu


Hong Kong finishes worst week in two months

Weimob (2013 HK), a provider of marketing and cloud services for businesses on social media platforms such as WeChat, tumbled by 12.5 per cent to HK$4.55 after announcing plans for a share placement and stake cut by three shareholders.
The company is placing 255 million new shares at HK$4.6 apiece to raise HK$1.2 billion in capital, according to a stock exchange filing. The new shares represent about 13 per cent of the existing issued share capital of the company.
In addition, three shareholders of Weimob, with each owning no more than a 5 per cent stake, will sell 50 million shares, or 2.5 per cent of the overall shares, at HK$4.6 each, according to the filing.
— Yujing Liu 


Marketing services provider Weimob plummets on share placement plan

Stocks listed on the STAR technology board finished the week 140 per cent higher than their offering prices on average, despite falling broadly today.
Semiconductor manufacturer Anji Microelectronics Technology (688019 SH) fell 12.2 per cent at 176.25 yuan today, but it is still 350 per cent higher than its offering price of 39.19 yuan. That made it the top performer among the 25 stocks that were the first to be offered on the new board on Monday.
Turnover on the board was 19.6 billion yuan (US$2.8 billion) today, boosting the total for the week to 142 billion yuan.
For the first week stocks trade on the STAR board, they are being allowed to move freely. On Monday, two new stocks will be listed on the board.
Starting on Monday, this week's batch of 25 STAR stocks will be allowed to trade no more than 20 per cent up or down in a day. That's more than on other Chinese markets, where stocks can trade up or down by a maximum of 10 per cent.
The highly anticipated STAR stocks aren't currently available to traders through the Stock Connect programme, but some STAR stocks are expected to be offered to northbound traders later.
— Yujing Liu
