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Zhang Shidong

Deb Price

Good day, traders --
Catch up on all the big moves and news in Hong Kong and mainland China markets. If you would like the blog sent to you each day via email -- the link updates with new items automatically -- just shoot Deb a message at deb.price@scmp.com.
-- Zhang Shidong in Shanghai and Deb Price in Hong Kong  


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Hong Kong firms rush to issue convertibles – and trend could continue, bankers say

Stocks

Stocks Blog: MTR shares fall after train derails; China benchmark falls most in 10 weeks 

An MTR train carrying passengers derailed on the East Rail line -- a first for the world-class commuter system. MTR shares fell more than 1 per cent today. Photo: Felix Wong

An empty shop in Tsim Sha Tsui, which shows the impact of months of protests. Photo: Felix Wong

Business

Markets

China’s expensive small-caps are cause for sell-off, investor says
African swine fever hitting corn production


Use of Lands Resumption Ordinance would have 'profound' negative impact on property stocks, says Louis Tse Ming-kwong


China stock market

Hong Kong stock exchange

MTR Corporation

Hong Kong protests

Tencent Holdings

Cathay Pacific

Sun Hung Kai Properties

Hong Kong property

Live

 Overnight markets/ What futures foretell
  -- Overnight in US markets, the S&P 500 and the Nasdaq both fell 0.3 per cent, and the Dow Industrials slipped 0.5 per cent
 -- Hong Kong futures were 0.2 per cent higher, while the FTSE China A50 futures slid 0.2 per cent
IPO debuts: Hubei W-OLF Photoelectric Technology (002962 CH)
Economic statistics/Central Bank action: China’s statistics bureau is due to release the August housing prices today
Corporate events: earnings, meetings, news conferences
-- nothing major
Later this week: China will release the monthly loan prime rate on Friday


Morning guidance 

Air China (753 HK; 601111 CH) reported growth in its passenger traffic in August.
In the month, Air China and its subsidiaries saw passenger traffic -- described as measured by  revenue passenger kilometers -- rose 6.1 per cent year-on-year, it said in a filing to the Hong Kong stock exchange after market hours Monday. 
Meanwhile, passenger capacity -- measured by available seat kilometers -- and passenger traffic record a year-on-year increase of 5.6 per cent year-on-year.
Broken down,  for domestic routes, it saw increases in its passenger capacity (up 7.3 per cent) and its passenger traffic (6.9 per cent), year-on-year. In internatinoal routes, passenger capacity grew 2.9 per cent and passenger traffic increased 5.9 percent, it said. For regional routes, passenger capacity increased by 7.1 per cent and passenger traffic decreased 4.5 per cent for August compared to the year before.
It launched a Beijing to Nice flight three shifts per week on August 2. 
As at the end of August 2019, Air China and its subsidiaries operated a fleet of 678 aircraft.
Of analysts tracked by Bloomberg, 18 rate the Hong Kong shares a buy, six a hold and none a sell. Their consensus target price is HK$8.44. It closed Monday at $HK7.23. 

 
-- Deb Price 
 


Air China reports passenger traffic up 6.1 per cent in August

China Eastern Airlines (670 HK; 600115 CH) reported growth in its passenger traffic volume (measured by revenue passenger-kilometres) of 9.8 per cent in August year-on-year.
Its passenger traffic volume on domestic routes increased 10.69 per cent, while international routes saw a 10.10 per cent increase for the month year-on-year, it said in a new stock filing in Hong Kong.
But passenger traffic volume of its regional routes decreased by 15.41 per cent.
It launched a number of new domestic routes, as wellas new new international routes such as
Dalian-Kitakyushu and Xi’an-Dubai.
As at the end of August 2019, it operated 705 aircraft. 
Of analysts tracked by Bloomberg, 19 call its Hong Kong shares a buy, five a hold and one a sell, with a target price of HK$4.80. It closed Monday at HK$4.02.
 

-- Deb Price 


China Eastern Airlines reports 9.8 per cent growth in passenger traffic in August 

In a base-case scenario, profits for all the mainland-traded companies will probably increase 1.9 per cent this year and 17 per cent in 2020 should oil futures trade at US$60 a barrel in the fourth quarter next year, Citic Securities said in a research note today.
In an extreme case that oil prices surge to US$75 a barrel and stay at that level, earnings growth may reach 1.6 per cent this year and 15 per cent next year, the brokerage said.
Crude oil traded at US$61.85 a barrel in New York on Tuesday after a 15 per cent jump a day earlier on the back of a drone attack on an oil-processing facility in Saudi Arabia.
-- Zhang Shidong


Surging oil prices to have muted impact on Chinese companies’ earnings, Citic says

Several dozen small retailers are likely to shut shop as soon as the end of this month due to plunging sales that could lead to thousands of lay-offs as protests frighten away tourists, according to a Hong Kong-based staffing agency.
“It is just too hard to survive,” said Alexa Chow Yee-ping, managing director of AMAC Human Resources Consultants, adding that retail chains were trying their best to keep permanent staff despite the gloomy scene.
About 20 per cent to 30 per cent of retailers were now starting to send full-time employees on unpaid leave to cut costs after having let go of part-time workers.
And although the upcoming five-day “golden week” national day holiday starting on October 1 is generally a busy sales period, retailers could miss out as the city is unlikely to see a repeat of the 1.2 million mainland tourists who visited Hong Kong last year.
Read full story here by Holly Chik.


Dozens of Hong Kong retailers expected to shut over protests

Corn accounted for almost 8 per cent of China’s gross domestic product last year and 40 per cent of the country’s overall grain production, but one of the country’s three principle crops is feeling the effects of the African swine fever epidemic as demand for pig feed shrinks, according to industry insiders.
Along with wheat and rice, corn is one of the three principle crops in China, meaning the government will take steps to ensure the country’s self-sufficiency as part of its overarching food security policy.
The annual output of corn was the largest of all crops at 257 million tonnes last year, with the corn industry also an important part of the nation’s economy, contributing 7.8 per cent of China’s gross domestic product last year, according to Tong Yi, chief engineer at the China National Cereal, Oils and Foodstuffs Corporation, the largest state-owned food processor in China.
But the latest data from China’s agriculture ministry showed that as of the end of August, the country’s live pig population had fallen by 38.7 per cent from a year earlier. The number of sows had also shrank by 37.4 per cent, indicating fewer piglets will be born and the pig population will continue to shrink in the near term, and as a result, the demand for corn has and will decline sharply.
Feng Jilong, general manager at Dalian Northern International Grain Logistics, said that the impact of African swine fever on the corn market has proven to be far more powerful than previous estimates. At the beginning of the year, the estimate was that the pig population would fall by about 20 per cent, or only half of the real 40 per cent loss so far, Feng said.
 
Read full story by Orange Wang here. 


African swine fever hitting corn production

MTR (66 HK) fell 1.9 per cent to HK$45.90 after one of its trains carrying passengers derailed in Hong Kong.
That was the first derailment in the MTR's history. It led to a service suspension on the East Rail line.
Read a full story on the derailment by Zoe Low here. 
-- Deb Price
 


MTR falls after train derails 

Stocks in the mainland and Hong Kong both edge lower at the open, as traders assess the impact of surging oil prices on corporate earnings and the lower-than-estimated China economic data released a day earlier.
The Shanghai Composite Index dropped 0.5 per cent, while the Hang Seng Index lost 0.9 per cent.
-- Zhang Shidong 


China and Hong Kong’s stocks open lower

Use of the Lands Resumption Ordinance, which allows the city’s government to take back private land for an established public purpose, would have a "profound" negative impact on property shares, says Louis Tse Ming-kwong, managing director of VC Asset Management. It is an idea that has some backers.
“A combination of the government’s plan to acquire developers’ farmland and the social unrest will have a profound [negative] impact on the share prices of property developers," he said.
“The acquisition of their farmland will affect them, and the social unrest will affect them,” Tse said.
Developers that own a lot of farmland, such as Henderson Land (12 HK) and Sun Hung Kai Property (16 HK), will need to negotiate with the government, he said. “Their finished projects, which were not built on farmland and are about to be launched, will be affected by the economy and the social unrest,” he added.
Hong Kong has yet to identify land for 67,000 public housing units to meet its 10-year supply target, according to the Bank of America Merrill Lynch report. And if its government were to use the ordinance, the developers should get a maximum of HK$5 billion (US$639.3 million) to HK$7 billion.
Some of Hong Kong’s biggest private developers hold about 100 million square feet in farmland.
Sun Hung Kai Properties, Hong Kong’s biggest developer, had 30 million square feet of farmland at the end of 2018. Henderson Land Development, the second-biggest, had the largest holding of 45 million square feet, while CK Asset Holding (1113 HK) and New World Development (17 HK), both in the top 10, had farmland holdings of 9 million square feet and 16 million square feet, respectively.
Read full story here by Martin Choi.  
 


Use of Lands Resumption Ordinance would have 'profound' negative impact on property stocks, says Louis Tse Ming-kwong

China’s Finance Vice-Minister Liao Min will go to the United States for trade negotiations on Wednesday, state-run news agency Xinhua has reported.
Liao will lead a delegation to Washington in preparation for the face-to-face meeting to be held next month between Chinese Vice-Premier Liu He, US Trade Representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin.
It will be the first time Liao has taken a lead role in high-stakes trade talks.
Liu, Lighthizer and Mnuchin this month held a phone conversation and agreed to meet in October. US President Donald Trump has also announced he will delay a tariffs hike from October 1 to October 15.
Read full story here by Wendy Wu. 


China trade teams heads to Washington on Wednesday, Xinhua reports

Billionaire Terry Gou’s companies fell in Shanghai and Taipei after he announced late Monday that he will pull out of the presidential election in the island.
Foxconn Industrial Internet (601138 CH) sank 2.6 per cent to 14.49 yuan in Shanghai, while Hon Hai Precision Industry (2317 TT) lost 1.5 per cent to NT$74.90 in Taipei and Foxconn Technology (2354 TT) slipped 1.2 per cent to NT$63.90.
Gou quit the KMT last week and had been widely expected to run for the presidency as an independent.
-- Zhang Shidong


Gou’s Foxconn-linked stocks slide after he drops Taiwan presidential campaign

Hubei W-OLF Photoelectric Technology (002962 CH) jumped by 44 per cent, the maximum gain allowed for initial public offering shares on mainland’s exchanges, to 20.72 yuan on the first day of trading in Shenzhen today. The offer price was 14.39 yuan.
-- Zhang Shidong


Hubei W-OLF surges by maximum gain in debut

The People’s Bank of China injected 200 billion yuan (US$28.3 billion) into the financial system through the medium-term lending facility today, it said in a statement on its website.
The MLF charged an interest rate of 3.3 per cent on commercial lenders, unchanged from the last time it conducted the open-market operation.
-- Zhang Shidong


China’s central bank unleashes 200 billion yuan via MLF

Pantronics (1611 HK) is taking traders on a wild ride in morning trading. 
The stock had taken off like a rocket -- shooting up 96 per cent since last Wednesday as of Monday's close -- after announcing it was changing its name to Huobi Technology Holdings. 
This morning, it shot up 14.6 per cent as traders piled in. Then it plunged. It is now down 6.3 per cent to HK$5.70.
Huobi, written in Chinese characters  -- 「火 幣 -- reads as "currency on fire," and cryptocurrency traders in Asia are very familiar with the Huobi cryptocurrency exchange.

 
In August 2018, Huobi acquired a 71.67 per cent in Paltronics for HK$586.4 million.
The name change has to be approved by shareholders.
“While the group continues to develop the relatively stable manufacturing businesses, it is looking into further expansion to the fast growing technology related businesses. The proposed Change of Company Name will better reflect the Group’s future strategic direction and development plan,” it stated in the exchange filing.
Pantronics had been engaged in contract manufacturing.
Founded in China, the Singapore-based Huobi today ranks as 25th top cryptocurrency exchange by trade volume by Coinmarketcap, a cryptocurrency market analysis website, with trading volume totalling US$558.7 million.
-- Deb Price and Georgina Lee 


Watch out: 'super hot' Pantronics shot up before plunging in early trading 

Excessive gains on China’s smaller companies were blamed for fragile sentiment on the broader market today, prompting traders to cash out and lock in profits, according to Hengsheng Asset Management.
The ChiNext gauge of smaller companies in Shenzhen had risen 21 per cent through yesterday from a June low, entering a bull market and making the gauge more than five times as expensive as the benchmark Shanghai Composite Index.
“Small-caps are very expensive after the run-up and investors are rushing to pocket profits now,” said Dai Ming, a Shanghai-based fund manager at Hengsheng Asset in Shanghai. “Their earnings outlook may not justify the current valuations, given the poor macro-economy environment in China.”
The ChiNext lost 1.6 per cent at the break, set for the biggest loss in six weeks, and the Shanghai Composite fell 1 per cent.
-- Zhang  Shidong


China’s expensive small-caps are cause for sell-off, investor says

China central bank’s move to conduct a 200 billion-yuan (US$28.3 billion) medium-term lending facility today may not be enough to please investors, who had expected a rate cut in the funding tool, according to JPMorgan Asset Management.
The amount was also lower than the maturing one of 265 billion yuan, said Chaoping Zhu, a Shanghai-based strategist for global markets at the firm. The central bank refrained from further loosening, mainly because it already released 800 billion yuan through a cut in banks’ reserve requirement ratio that took effect yesterday, he said.
-- Zhang Shidong


PBOC’s MLF may disappoint investors, JPMorgan Asset says

MTR (66 HK) shares are trading down 1.3 per cent at HK$1.3 per cent after a train carrying passengers derailed. leading to a partial shutdown of the East Rail line.
More details are emerging. Here's more of what we know from SCMP reporters.
Services between Mong Kok East and Hung Hom stations were shut down from about 8.30am on Tuesday after a carriage came off the track, rail operator the MTR Corporation said.
Secretary for Transport and Housing Frank Chan Fan, who was on the scene from about 10.30am, said there were eight injuries, though he gave no details on their seriousness. Emergency services were out in force to help those affected.
At the Exit C concourse of Hung Hom station, a female passenger from the derailed train was treated by medical personnel for smoke inhalation.
Video: SCMP/Lea Li pic.twitter.com/jMMAdL64nT
— SCMP Hong Kong (@SCMPHongKong) September 17, 2019
 
When it derailed, the train was arriving at Hung Hom from Mong Kong East, though the rail operator initially said the train was heading in the opposite direction.
It was understood the derailment happened at a diverting point, where trains are directed to different platforms or other locations, their direction and speed controlled by computer.
According to documents seen by the Post, a section of rail between the two stations was scheduled to be replaced during Tuesday’s early hours. An insider source confirmed that the work went ahead, and was in the area where the derailment happened.
A senior source at the corporation said earlier it had not found any suspicious objects on the track. The area where the derailment happened was closed off, the source added, hinting that it would have been difficult for anyone to get in and cause disruption.
Read full story here. 
-- Deb Price 


More on MTR derailment: no suspicious objects on track; MTR shares down 1.3 per cent

Only a few stocks on the Hang Seng Index are not under water in afternoon trading. The Hang Seng is down 1.2 per cent at 26,789.68.
Among the top losers: China Overseas Land and Investment (688 HK), a real estate services provider, is down 2.5 per cent to HK$25.15. Geely Automobile (175 HK) is down 3.2 per cent at HK$13.24. China Petroleum and Chemical (386 HK) is down 3.8 per cent at HK$4.85.
Other noteworthy moves: The world's top pork producer WH Group (288 HK) is down 3 per cent to HK$7.25, after posting four straight sessions of gains. It has struggled amid tariffs and the African swine fever, which has roiled pork supply. 
Hengan International (1044 HK), China's big sanitary napkin and diaper maker, is down 2 per cent at HK$51.75, after a 3.9 per cent fall on Monday. It is facing stiff competition from international rivals in the China market. 
Only a few of the 50 stocks on the Hang Seng are not posting losses after lunch, including China Shenhua Energy (1088 HK), which is up 0.5 per cent to HK$16.78, and CLP Holdings (2 HK), which is up 0.2 per cent at HK$81.25.
-- Deb Price 
 


All sectors trading down on the Hang Seng

Western Securities (002673 CH) dropped 4.4 per cent to 9.20 yuan in Shenzhen trading, heading for its biggest drop since May 17, after the brokerage sued the controlling shareholder of a listed company for defaulting on debt repayments.
Western Securities brought the case to a court in Beijing, demanding Wang Jing, the biggest shareholder of Beijing Xinwei Technology (600485 CH), pay 500 million yuan (US$70.5 million) in loan and other expenses linked to interest, among other things, it said in an exchange statement.
Wang pledged 70 million Xinwei’s shares for the loans to Western Securities. The hearing has not started, the statement said.
Xinwei slid 4.6 per cent to 1.67 yuan in Shanghai.
-- Zhang Shidong


Western Securities falls most in four months as client fails to make debt repayment

Sell-offs on the stock markets in China and Hong Kong deepened in afternoon trading, with both of the benchmark gauges falling 1.5 per cent.
The ChiNext gauge of small-caps led the decline, sliding 2.3 per cent, after entering a bull market last week. China Petroleum and Chemical (Sinopec; 386 HK), China’s biggest oil refiner, sank 3.4 per cent in Hong Kong as the worst performer on the Hang Seng gauge.
While Hengsheng Asset Management said Chinese small-caps have risen too quickly, building up profit-taking pressure, JPMorgan Asset Management said China’s central bank’s medium-term lending facility operation was disappointing today by not lowering the rate on the funding tool.
-- Zhang Shidong


China and Hong Kong stocks extend losses in afternoon trading

Smaller companies are bearing the brunt of the massive sell-off today.
The following chart gives some insight into why. The ChiNext index of small-caps was more than five times as expensive as the Shanghai Composite Index and the CSI 300 Index, the benchmarks that are dominated by bigger companies, on the price-to-earnings ratio scale.
The smaller companies had been outdoing big ones since June, as expectations about policy easing boosted risk appetite.
 

-- Zhang Shidong


Chart: Why investors are abandoning Chinese small-caps

It was a turbulent day for Chinese stocks today.
The Shanghai Composite Index sank 1.7 per cent to 2,978.12 at the close, the biggest decline since July 8, while the ChiNext gauge of smaller firms retreated 2.1 per cent.
Traders’ hope of aggressive policy easing was dashed today, when the central bank did not lower the rate on the medium-term lending facility, a funding tool for commercial lenders, via the open-market operation.
-- Zhang Shidong


China’s stock benchmark falls most in 10 weeks as small-caps tumble

Moody's Investors Service changed the rating outlooks on MTR (66 HK) and  Kowloon-Canton Railway changed to negative from stable.
"The outlook change on Hong Kong's ratings has a negative effect on the credit quality of government-related issuers (GRIs) that are closely connected to Hong Kong's ratings and outlook," it said in a note today.
"... Under Moody's joint default analysis approach for GRIs, the rating or credit quality of governments providing support to GRIs is one of the key inputs for the GRIs' ratings. The ratings of MTRC and KCRC, which incorporate a very high likelihood of support and uplift from the
Hong Kong government, are very sensitive to a change in Hong Kong's ratings and outlook," it said.
"Moody's assesses MTRC's and KCRC's dependence on the Hong Kong government as high and very high, respectively. The two GRIs' credit quality is correlated with the government's given their close operational and financial linkages," it said.
MTR was trading down 1.7 per cent to HK$46. 
-- Deb Price 
 


MTR rating outlook downgraded to negative by Moody's 

The Hang Seng Index lost 1.2 per cent to 26,790.24 at the close today, extending a 0.8 per cent loss a day earlier.
MTR (66 HK) fell after one of its trains derailed for the first time in history and China Petroleum and Chemical (Sinopec; 386 HK) was the biggest decliner on the gauge, with a 3.6 per cent drop.
-- Zhang Shidong


Hong Kong stocks fall for second day as MTR slides on train derailment

Stocks Blog: MTR shares fall after train derails; China benchmark falls most in 10 weeks

.css-1mniedq{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;}China’s expensive small-caps are cause for sell-off, investor says African swine fever hitting corn production

China’s expensive small-caps are cause for sell-off, investor says

African swine fever hitting corn production