Shanghai stocks post biggest weekly drop in three months as ZTE and telecom makers tumble

China and Hong Kong stocks ended the week on a softer note on Friday, with the mainland’s benchmark capping the worst five straight days of trade in three months, as ZTE and other telecom equipment makers retreated on renewed concern the ongoing trade war will disrupt business operations.

The Shanghai Composite Index fell 0.7 per cent to 2,774.75. The gauge lost 3.3 per cent for the week, its biggest decline for the five-day period since May 10. Hong Kong’s Hang Seng Index dropped 0.7 per cent to 25,939.30, declining for the first time in three days.

The US has reportedly reversed its decision to allow American companies to resume business with Huawei Technologies, China’s biggest maker of telecom equipment, as retaliation against Beijing’s recent move to halt purchases of American agricultural products amid the intensifying trade war.

Also weighing on sentiment was a report released on Friday morning by the National Bureau of Statistics which showed that July inflation accelerated to the fastest pace since February last year. That may weaken the case for policymakers to loosen monetary policies.

“The halt of the expected approvals of some US companies to supply Huawei with components had a significant impact on the tech and telecom sectors,” said Gerry Alfonso, director with the international business department with Shenwan Hongyuan Group in Shanghai. “Volatility in tech and telecom names is likely to remain high as the opposing forces of a very positive outlook for 5G technology is compensated by the uncertainty in the trade front.”

The regulator’s effort to bolster market confidence was not helpful, with traders shifting their focus to the trade front again. In an interview with the state-owned Xinhua News Agency, vice-chairman of the China Securities Regulatory Commission, Li Chao, said the impact of the trade dispute should not be played up. He added that China had a rosy growth outlook, low stock valuations and limited leverage.

ZTE, China’s second-largest phone equipment maker after Huawei, sank 7.7 per cent to 27.90 yuan, posting its steepest decline since May 6. The company’s Hong Kong-listed shares slumped 7.8 per cent to HK$20.10. Among other stocks in the sector, Eastcompeace Technology slid 8.1 per cent to 11.30 yuan and Datang Telecom Technology shed 4.7 per cent to 10.13 yuan.

Hisense Electric, China’s biggest maker of LCD TV sets, tumbled 5.5 per cent to 7.68 yuan, the lowest close since January 2012. First-half net income decreased 82 per cent from a year earlier to 62 million yuan (US$879,233), according to an exchange statement. The company was struggling with shrinking demand and increasing competition from technology companies like Xiaomi, whose online sales of TV sets took the No 1 position in the first half, Shenwan Hongyuan Group said in a research note on Friday. The brokerage slashed Hisense’s earnings forecast for this year by 54 per cent and by 49 per cent for 2020.

Swire Pacific slid 4.1 per cent to HK$81.80 after the conglomerate said the ongoing unrest in the city would affect many of its businesses.

China Mobile, the nation’s biggest operator of wireless phones, advanced 2.9 per cent to HK$64.90 after company executives said in an analysts’ call that capital expenditure would not increase over the next three years. The stock was upgraded by brokerages BOC International, CLSA and Mizuho.