China stocks drop on fears US-China tech cold war could escalate

China stocks fell on Wednesday as fears mounted that the US might target another Chinese technology firm after banning technology exports to Huawei.

The Shanghai Composite Index dropped 0.5 per cent to 2891.7, while the Shenzhen Component Index also declined 0.5 per cent. The Nasdaq-style ChiNext Index shed 0.3 per cent.

The declines came after The New York Times reported the Trump administration was considering blacklisting Hangzhou Hikvision Digital Technology, one of the world’s largest makers of video surveillance products, citing anonymous sources.

“The technological cold war between China and the US looks set to continue, and the market sentiment is very cautious now,” said Stanley Chan, director of research at Emperor Securities.

In Hong Kong, the Hang Seng Index edged up 0.2 per cent to 27,705.94.

Hikvision, which is traded on Shenzhen’s main board, closed 5.5 per cent lower at 26.07 yuan, after plunging by as much as 10 per cent in early trading.

The company said it did not receive any official notice on a reported potential US export ban, and it will be affected even if American companies stop supplying it chips, according to Chinese media.

Meanwhile, Jefferies analysts said a US ban would be less disruptive than what the market expected for Hikvision, in a report published on Wednesday.

Most of Hikvision’s AI surveillance projects are sold in China, and its revenue exposure to the US is just around 5 per cent of its total sales, analysts led by Rex Wu wrote in the report.

The company can replace its GPU chip suppliers in the US such as Ambarella and Nvidia with local Chinese firms like Huawei’s Hisilicon, according to the report.

A gauge tracking 69 stocks related to chip manufacturing listed in Shanghai and Shenzhen rose 1.4 per cent, with Kyland Technology and Ingenic Semiconductor surging by the daily limit of 10 per cent.

Meanwhile, a sudden passion in rare-earth stocks faded, after two days of frenzied buying.

China Rare Earth, which soared as much as 132 per cent at one point on Tuesday, plunged 27 per cent to close at HK$0.56.

The stock’s rapid ascent on Tuesday followed a visit by President Xi Jinping to a rare-earth magnetic materials producer in the southeastern province of Jiangxi on Monday. Investors speculated that China may retaliate in the trade war with the US by limiting its rare earth exports, which account for 90 per cent of global consumption.

All but three of the 38 mainland Chinese stocks related to rare-earth magnets fell today, with a gauge tracking them ending 3.3 per cent lower.

JL Mag Rare-Earth (300748 SZ), the company visited by Xi, was one of the three that still held up. Shares of the company rose 7.3 per cent to 30.63 yuan, its highest level since November 2, 2018.

Stocks related to horse racing and the southern island of Hainan bucked the downward trend and soared, on the back of a media report saying the local government is preparing an official document to guide the development of horse racing industry.

Hainan province’s tourism and culture department drafted the document, which is now pending approval from the provincial government, the state financial newspaper Securities Times reported.

Investors have high hopes for the legalisation of horse racing in Hainan, since China announced in April 2018 it planned to turn the entire island into a free-trade zone. It could potentially open a door to betting and gambling, which is outlawed in China.

A gauge tracking 27 stocks related to Hainan jumped 3.8 per cent, with five of them soaring by the daily limit of 10 per cent.

Horse racing-related stocks also climbed 3.7 per cent, according to a subindex tracking 16 relevant stocks, with four of them surging by 10 per cent. Hainan Ruize New Building, which invested 3 billion yuan in building a horse riding-themed tourism project, was one of those that jumped 10 per cent.