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Martin Choi

Deb Price

Good day, traders --
The Hang Seng Index ended down 0.8 per cent while China markets eked out gains.
Catch up on the day's action below.
And if you would like to get the stocks blog each morning via email, shoot Deb an email at deb.price@scmp.com.
 
-- Martin Choi and Deb Price in Hong Kong


Stocks Blog: Hang Seng Bank, other banks fall in Hong Kong on Morgan Stanley downgrades

Hikvision, one of the world's largest makers of video surveillance products, was put on a trade blacklist this week by the US over China's alleged "brutal suppression" of Muslims. 

Business

Markets

Sun Hung Kai Properties to help tenants with shops damaged by protests
Bigger compensation planned for investors whose Hong Kong brokers go bust


China has toned down expectations for the trade talks that begin on Thursday


Stocks

Hong Kong Stock Exchange

Hang Seng Index

US-China trade war

Morgan Stanley

Live

Here's what we are watching this morning:
US overnight markets/ What futures foretell
--The S&P 500 fell 1.56 per cent, the Nasdaq fell 1.67 per cent and the Dow Jones Industrial Average fell 1.19 per cent.   -- Hong Kong futures were 0.84 per cent lower, while the FTSE China A50 futures slid 0.5 per cent
IPO debuts: none to note
Economic statistics/Central Bank action: None to note   


Morning guidance 

China is subtly toning down expectations ahead of this week’s high-level trade talks with the United States in Washington as the two camps remain sharply divided over fundamental issues.
Vice-Premier Liu He is again leading China’s delegation to Washington for the talks on Thursday and Friday, according to an official statement released by China’s Ministry of Commerce on Tuesday.
It will be the first meeting between the two countries’ top negotiators on US soil since the talks collapsed in May.
But for this round of discussions – the 13th between the sides –, Liu will not carry the title of “special envoy” for President Xi Jinping, an early indication that the 67-year-old vice-premier has received no particular instructions from China’s leader.
Speaking on condition of anonymity, a source briefed on the preparations for the talks also told the South China Morning Post that the Chinese delegation may cut short its stay in Washington.
That would remove any chance of the talks extending into Friday evening as the delegation would be expected to head to the airport instead of departing at some point on Saturday.
Read full story by Zhou Xin here.    


China tones down expectations of trade talks beginning this week

Beijing has demanded that the US revoke a decision to add 28 Chinese government and business entities to an export blacklist over their role in Xinjiang – but stopped short of saying whether it would retaliate.
Speaking days before high-level trade talks resume in Washington, foreign ministry spokesman Geng Shuang told reporters to “stay tuned” when asked if China would act over the blacklisting of some of the country’s biggest producers of surveillance equipment and artificial intelligence start-ups.
He went on to accuse the US of having “sinister intentions” and said Washington should immediately correct its mistakes and stop interfering in China’s affairs.
“China will continue to take firm and forceful measures to resolutely safeguard national sovereignty, security and development interests,” he said.
Read full story by Shi Jiangtao here.   


China tells US to reverse blacklisting of tech giants over Muslims

China’s leading e-commerce platforms, including Alibaba’s Taobao, JD.com and Pinduoduo, have blocked products related to US basketball team the Houston Rockets, whose general manager Daryl Morey on Friday posted a now-deleted tweet that indicated support for the pro-democracy protests in Hong Kong.
  Online searches for Houston Rockets merchandise on the platforms turned up a message saying “items not found”.
Alibaba did not immediately respond to several requests for comment. A spokeswoman from Pinduoduo declined to comment on the issue. A spokesman from JD.com said the company had no comment on the issue.
It is not the first time Chinese e-commerce sites have blocked items due to the Hong Kong protests triggered by the city government's now-abandoned extradition bill.
In August, Bloomberg reported that searches on Taobao for umbrellas, masks, and helmets – standard equipment used by the protesters – showed “item not found” for buyers based in Hong Kong while those on the mainland were still able to access such products.
A search by the Post on Tuesday showed those items were still not available on Taobao’s Hong Kong site.
The controversial tweet, which said “fight for freedom, stand with Hong Kong”, has got the Texas-based team into hot water.
Read full story by Tracy Qu here.   


Chinese e-commerce platforms block Houston Rockets’ merchandise

Mainland property developer Jiayuan International Group (2768 HK) said on Tuesday night that Moody’s Investors Service has upgraded its corporate family rating from “B3” to “B2”. The outlook on the rating is stable.  
The developer holds has built some of the smallest homes built in the city. It was temporarily suspended from trading in January after its shares lost more than 80 per cent of their market value a week earlier after a massive sell-off led by its chairman and his wife.
Chairman Shum Tin Ching and his wife Wang Xinmei sold a combined 93.62 million shares in January at an average price of HK$2.70, according to a Hong Kong stock exchange filing.
The developer closed at HK$3.19 on Tuesday, down 2.15 per cent from the previous close.   
-- Enoch Yiu    


Jiayuan gets Moody's upgrade 

Confirming earlier news reports, Geely Automobile Holdings (175 HK) said its parent company Zhejiang Geely Holding Group intends to work with Volvo Car to merge their existing combustion engine operations into a stand-alone business in order to establish a new global supplier that will seek to develop next-generation combustion engines and hybrid powertrains. 
Both Geely and Volvo are controlled by Li Shufu. The company said it does not rule out the possibility of exploring potential cooperation opportunities with the merged unit of Geely Holding and Volvo Cars.
Geely closed 2.6 per cent higher on Tuesday at HK$13.52.   
-- Enoch Yiu    


Geely Automobile's parent company, Volvo merging engine operations

The Securities and Futures Commission said it will boost the amount of compensation investors can get if their broker goes bust.
Beginning in early 2020, a new rule will mean each investor could get up to HK$500,000 in compensation if their brokerage firm collapsed. That would be up from HK$150,000 now. 
The rule will cover international investors who trade through Hong Kong brokers to invest into the mainland A-share market via the Stock Connect programme.
-- Enoch Yiu    


Hong Kong investors to be entitled to larger compensation if brokers collapse

Sun Hung Kai Properties (0016 HK) one of the largest developers in Hong Kong, said it would assist its tenants reeling from damage from protests by helping them rebuild their shops.
It said several of its shopping malls were affected by the protests and some shops were damaged. SHKP urged the government to offer help for the SMEs.
-- Enoch Yiu    


Sun Hung Kai Properties to help tenants with shops damaged by protests

The Hang Seng Index is trading down by 0.78 per cent at 25,692.48.
Of noteworthy Hong Kong-listed stocks that have been hard hit by the protests:
MTR (66 HK) is up 0.1 per cent at HK$43.65.
Sa Sa International (178 HK) is up 0.6 per cent at HK$1.69.
Chow Sang Sang (116 HK) dropped 1 per cent to HK$8.36.
Chow Tai Fook (1929 HK) is up 0.3 per cent to HK$6.39.
Here's a feature by stocks reporter Louise Moon on what analysts are saying about Hong Kong-listed retail stocks. 
-- Deb Price    


Hang Seng down in early trading 

The Shanghai Composite Index is down 0.65 per cent to 2,895.
The CSI 300 Index of top Shanghai and Shenzhen stocks is down 0.59 per cent to 3,814.96. 
Some noteworthy China-listed stocks:
Liquor giant Kweichow Moutai (600519 CH) is down 1.29 per cent to 1,152 yuan.
Gree Electric (000651  CH), China’s biggest maker of air conditioners, is down 0.9 per cent to 57.63 yuan.
Pig breeder New Hope Liuhe (000876 CH) is down 0.56 per cent at 17.90 yuan.
-- Deb Price    


China stocks trading down, with Kweichow Moutai falling more than 1 per cent 

Hang Seng Bank (11 HK) is the leading percentage loser on the Hang Seng Index, falling 3 per cent to HK$160.10 after Morgan Stanley downgraded it to underweight/cautious from equal weight/in line and dropped its 12-month target price to HK$140 from HK$175.
Of analysts covering the stock and tracked by Bloomberg, three call it a buy, six a hold and two a sell, with a target price of HK$181.04.  
Other Hong Kong-listed bank stocks suffered as well as Morgan Stanley downgraded the sector to cautious from in-line, citing the low rate environment, Hong Kong's weakening economy and competition from virtual banks, according to a Bloomberg report.
It downgraded HSBC (5 HK) to underweight/cautious from equal weight/in-line, cutting the target price for the stock to HK$51 from HK$70. 
It downgraded Standard Chartered (2888 HK) to underweight/cautious from underweight/in-line and dropped its target price from HK$57 to HK$52. 
HSBC is down 0.4 per cent to HK$58.20 and Standard Chartered is down 1.7 per cent to HK$60.55.
-- Deb Price    


Hang Seng Bank falls 3 per cent after Morgan Stanley downgrade 

Changsheng Biotechnology (002680 CH) -- the Chinese company fined US$1.3 billion last October for falsifying data and selling ineffective vaccines -- is being delisted, according to an announcement on the Shenzhen Stock Exchange this morning.
The company’s stock, which has been suspended since March 15, 2019, will enter a delisting period on October 16, the exchange said.
In July 2018, it was found to have systematically forged the production and inspection data for about 113,000 rabies vaccines, and made about 252,600 ineffective vaccines for diphtheria, whooping cough and tetanus that were given to hundreds of thousands of babies.
-- Martin Choi    


Changsheng Biotechnology -- engulfed by vaccines scandal -- to be delisted

AAC Technologies (2018 HK) tumbled 3.8 per cent to HK$41.35, despite getting an upgrade to add from reduce from CIMB.
CIMB boosted the 12-month target price for the maker of miniaturized camera lenses, speakers, microphones and other components to HK$61.53 from just HK$25.70 it had given it on August 23. 
Of analysts tracked by Bloomberg, 11 rate the stock a buy, 20 a hold and six a sell. Among those rating it a sell is Morningstar, which on September 26 set its price target at HK$36.
The stock has gone through a lot of ups and downs to now be at pretty much at where it started at the beginning of the year. It has posted earnings misses partly due to a big drop in smartphone growth by Huawei, though it has benefited recently from strong sales of the iPhone 11 by Apple, another of its big customers.  
 

-- Deb Price    


AAC Technologies tumbles nearly 4 per cent 

Chinese pig breeder Muyuan Foodstuff (002714 CH) rose 0.75 per cent to 75.71 yuan, as the company recorded preliminary third quarter net income growth of between 238 per cent and 285 per cent compared to the same period last year.
Sales of the company’s live pigs in September rose to 1.9 billion yuan, a 40.6 per cent increase compared to August, as the company’s average pork price rose to 26.17 yuan per kilo, a 29 per cent increase from the previous month.
-- Martin Choi


Muyuan Foodstuff rises in China on big net income growth in 3rd quarter

The Hang Seng Index ended the morning session down 0.7 per cent to 25,716.77. 
Among noteworthy Hong Kong stocks:
Sunac China Holdings (1918 HK) jumped 4 per cent to HK$33.40 after reporting the real estate developer reported its September contracted sales value rose 18 per cent year on year. 
MTR (66 HK) dropped 0.3 per cent to HK$43.45, giving up earlier gains.
Sa Sa International (178 HK), which has been clobbered by the protests, is up nearly 3 per cent to HK$1.73.
Index heavyweight Tencent (700 HK) fell 1.2 per cent to HK$319.80.
The Shanghai Composite Index is down 0.1 per cent at 2,909.52, while the CSI 300 of leading Shanghai and Shenzhen stocks slipped 0.3 per cent to 3,825.39.
  -- Deb Price    


China, Hong Kong stocks will start afternoon session in the hole

As he looks ahead, Stanley Chan, director of research at Emperor Securities, sees more weakness for the Hong Kong stock market, which on top of protests is dealing with economic slowdown.
“In the past, the tourism and retail sectors as well as shopping malls took the brunt of the protests. Now investors seem to be worried about the state of the Hong Kong economy, and may be cautious towards the performance of the banking sector," Chan said. "The weakening interest rate environment also does not bode well for bank stocks."
Banking stocks have been down today after Morgan Stanley downgraded the sector to cautious, citing the low rate environment, Hong Kong's weakening economy and competition from virtual banks, according to a Bloomberg report.
Hang Seng Bank (11 HK) is down 3.3 per cent to HK$159.70,  HSBC (5 HK) slid 0.5 per cent to HK$58.15 and Standard Chartered (2888 HK) fell 2.1 per cent to HK$60.30.
“Hong Kong’s stock market has been affected by the US-China trade tensions, and investors are also worried about the worsening of the local economy. GDP growth in the third quarter is expected to slow to 0.9 per cent. Investors will be more cautious, and market sentiment is weak. That’s why Hong Kong stocks have dropped more than Chinese stocks,” Chan said.
“Investors don’t really have any expectations from this round of trade talks,” he added.
The Hang Seng Index is down 0.76 per cent to 25,697.15 in afternoon trading.
-- Martin Choi


More weakness ahead for Hong Kong's stock market, says  Stanley Chan of Emperor Securities

Tencent (700  HK) is down 1.4 per cent to HK$319.20 in afternoon trading after its decision to suspend online NBA basketball broadcasts.
"Increasing fallout from Houston Rockets' GM's tweet supporting Hong Kong protests may cost Tencent its 490 million users who view the sport on its platforms," Bloomberg Intelligence analysts write. 
"Tencent Sports has halted NBA pre-season games broadcasts in response to the tweet. In July, Tencent extended its exclusive online broadcast partnership with NBA for 5 years for a reported $1.5 billion, according to Lanxiong Sports," the analysts noted.
Citigroup said the move "will pose financial impact to Tencent," but didn't pinpoint what that might be, Bloomberg said. Citigroup maintained its buy on the social media and gaming giant, with a price target of HK$429.
Tencent has a huge fan base among analysts. Of those tracked by Bloomberg, 50 rate it a buy, seven a hold, and zero a sell. The concensus 12-month target price is HK$415.26.

 
-- Deb Price


Tencent slides in NBA spat

The Shanghai Composite Index has turned back up, gaining 0.3 per cent to 2,922 as it heads into the end of the trading day.
It is being weighed down by health and consumer staples stocks, while real estate companies have gained, up 1.25 per cent. Roughly twice as many stocks were ahead than those posting losses. 
Among those hitting the limit are Sino-Agri Leading Biosciences (603970 CH), a fertilizer and pesticide maker, Sobute New Materials (603916 CH), a concrete products maker, and GuangDong GenSho Logistics (603813 CH), which transports and warehouses automotive parts. 
Eleven stocks had hit or nearly hit the 10 per cent upside daily limit. 
In Shenzhen, J Mag Rare-Earth (300748 CH) shot up 9.9 per cent to 45.57 yuan. 
Some other stocks popular with northbound traders:
Liquor giant Kweichow Moutai (600519 CH) is down 1.7 per cent to 1,146.95 yuan.
Gree Electric (000651  CH), China’s biggest maker of air conditioners, is down 1.8  per cent to 57.09 yuan.
Pig breeder New Hope Liuhe (000876 CH) is down 0.33 per cent at 17.94 yuan.
-- Deb Price    


Shanghai turns back up 

Budweiser Brewing Co. APAC (1876 HK) has gained 2.4 per cent to HK$32.35, bringing up its gains in just over a week of trading to about 18 per cent. 
Its initial public offering price on September 30 was HK$27 per share, and it opened at HK$27.40 a share. 
Budweiser makes and sells such brands as Budweiser, Stella Artois and Corona, and its Asia Pacific unit sells beer in Australia, China, India, South Korea and Vietnam.
-- Deb Price 


Investors continue to lap up Budweiser in Hong Kong

“Given the hardening in attitudes on both sides during this protracted trade dispute, we’ll likely continue to see China trying to self-develop links in what used to be global supply chains and US companies continuing to develop non-China supply chains," said JPMorgan Asset Management's head of Greater China equities Howard Wang. "It’s also important to keep in mind that supply chains in textiles, electronics and other goods were already being developed in other countries prior to the tensions as China costs have risen over the years.  The trade war has simply accelerated this trend."
He continued:
"From a short-term standpoint, a narrow deal probably doesn’t resolve the root causes and lack of trust underlying U.S.-China tensions, so I would expect companies continue to stay circumspect on capital expenditure decisions. I think tradeable sectors in general have been under a pall during the trade war, so a rollback in tariffs – or at least some certainty around tariff levels – will be helpful.  The technology sector will see differentiated impact – on one hand, consumer electronics should benefit from a trade truce, but on the other hand, technology companies whose products overlap into US national security or human rights concerns will likely need to deal with sanction uncertainty for a very long time.
"Our portfolios are built around secular trends in China and elsewhere that are largely insulated from trade or the broader economic cycle.  Given the difficulty in assessing probabilities, our portfolios are not explicitly positioned for positive or negative outcomes from the negotiations.  Software, internet services, healthcare R&D and outsourcing and changes in consumer preferences are some primary bets we are making.
"We’ve been adding to non-trade sensitive technology stocks as well as some growth areas within financial services and cutting back our exposure to certain outperforming consumer names," he said.


JP Morgan Asset Management betting on software, internet services, healthcare R&D amid trade war

Budweiser Co. APAC (1876 HK) -- which has run up nearly 19 per cent in just over a week -- may be running out of steam, says Gordon Tsui Luen-on, managing director of investment company Hantec Pacific.
“There is a steady demand for Budweiser stocks. But ...  it may have already reached its reasonable price level, and investors will calm down again,” he said. 
Budweiser closed up 2.8 per cent at HK$32.50.
He expects traders to continue to be cautious in both Hong Kong and mainland markets.
“The overall market sentiment in Hong Kong and China is still weak, and nobody knows if the situation could get worse. Most investors will continue to wait and see as it’s not the right time yet. Transaction volumes are still really low, and there isn’t much desire to go against the market just yet,” said Tsui.
“Unless any new policies are implemented or the government takes any measures to improve the situation, affected sectors won’t see much improvement," he added, alluding to the economic weakness due to the trade war and ongoing protests.
“Pharmaceutical stocks will remain relatively stable amid the US-China trade tensions and social movements in Hong Kong. There will still be a demand for medicine and related services regardless of how the market is doing,” Tsui added.
-- Martin Choi
