Hang Seng follows Wall Street down on worries about global economy; China Literature, SMIC soar in Hong Kong

Hong Kong and mainland stocks fell Thursday, following US stocks down after the Federal Reserve chief warned of a rocky path ahead to economic recovery.

China Literature rocketed after management at Tencent highlighted future support for its e-reading spin-off in an earnings call. Semiconductor Manufacturing International Corp. also shot up after it posted a huge gain in year-on-year first-quarter profits.

Meanwhile, Tencent, the social media and games giant, gained after reporting better-than-expected first-quarter results.

The Hang Seng Index fell 1.5 per cent to 23,829.74, marking its third straight day of declines. The Shanghai Composite Index closed down 1 per cent at 2,870.34.

The sentiment in Hong Kong overall was bearish, as traders continued to worry about what’s in store for the world’s economies as they continue to feel the lash of the coronavirus.

US Federal Reserve chairman Jerome Powell warned overnight that “recovery may take some time to gather momentum,” and require additional stimulus from Congress to the trillions already poured into propping up the world’s top economy. He also ruled out lowering interests rates into negative territory as part of the central bank’s role in helping recovery.

“The market was so surprised about Powell’s bearish view on the economy and that he showed no love on negative rates,” said Alan Li, portfolio manager at Atta Capital.

The coronavirus pandemic continues to drive markets, as governments experiment with ways to lift restrictions on businesses without unleashing another round of infections. Nearly 300,000 people have died around the world. Pharmaceutical companies are racing to come up with a vaccine, but, as of now, there is none.

Meanwhile, US-China tensions are also weighing on market sentiment.

In the latest sign, the US extended a ban on domestic telecommunications companies from using equipment made by China giants Huawei Technologies and ZTE. The Donald Trump administration also stopped a federal workers’ retirement programme from investing in Chinese stocks. As he faces a tough re-election battle to remain president, Trump has ratcheted up attacks on China.

“The roller coaster recovery continues to be the theme of the week,” Stephen Innes, chief global market strategist at AxiCorp, wrote in a note. “ … Worries over the easing of coronavirus lockdowns and that alone suggest it certainly seems prudent to take some risk off the table.”

Index heavyweight Tencent (700 HK) jumped out of the gate, but narrowed its gains to finish up 0.2 per cent at HK$430.60.

Daiwa Capital Markets and Jefferies reiterated its “buy” rating on the Tencent stock, and boosted the target price for the coming 12 months to HK$515 from HK$430.

“We are upbeat about the strength of Tencent’s entertainment empire being significantly unleashed amid the lockdown,” analysts John Choi and Candis Chan wrote in a fresh note.

Meanwhile, Macau casino operator Galaxy Entertainment (27 HK) dropped 1.5 per cent to HK$51. 60 after posting earnings that disappointed investors.

It recorded a 61 per cent year-on-year fall in net revenue, to HK$5.1 million for the first quarter, and a 93 per cent year-on-year drop in adjusted Ebitda (earnings before interest, taxes, depreciation and amortization) to HK$283 million in the same period.

“We sense management is confident the sector will return to normal but this will take time with limited near-term visibility, which is dependent on quarantine policies being relaxed,” analyst Andrew Lee wrote.

Tencent-backed China Literature (772 HK) surged as much as 13 per cent to HK$42.82 during the day, its highest level since February 2019. It closed ahead 9.5 per cent at HK$41.55.

During Tencent’s earning call on Wednesday, its executive director Martin Lau said China Literature’s move to appoint new management was the right step toward protecting contributors on the platform through monetisation and intellectual property protection. China’s largest e-book seller is still exploring options of a free-to-read model to engage a larger audience.

The newly appointed management of China Literature met with its top authors last week to discuss compensation and contract issues, finance news site Caixin reported.

SMIC (981 HK), China’s biggest chip maker, shot up 9.7 per cent to HK$18.90, after reporting a 35.3 per cent year-on-year jump in revenue to US$904.9 million in the first quarter and a 422.8 per cent year-on-year increase in net profit to US$64.2 million over the same period.

SMIC expects revenue to grow up to 5 per cent quarter-on-quarter, it said in its second quarter guidance.

SMIC is poised to sustain revenue growth in the mid-teen range in the second half of the year on robust demand from China for mature-node integrated circuits and images sensors. The company plans to boost capital spending by 34 per cent to US$4.3 billion in 2020 to expand production capacity and increase domestic market share, wrote Bloomberg Intelligence analyst Charles Shum in a fresh note.

In mainland China, liquor distiller Kweichow Moutai (600519 CH) declined 0.7 per cent to 1,326.59 yuan. But it finished for a seventh straight session at or above 1,300 yuan as investors continue to bet Chinese consumers will return to it for gifts, banquets and investment as life returns to something akin to normal.

The world’s most valuable liquor maker has gained in eight out of the last 10 sessions and its share price has rallied about 30 per cent since March 23.

A gauge tracking 5G-related suppliers in China by Xuangubao retreated 0.9 per cent, after Trump’s move to ban Huawei and ZTE from selling their equipment to America.

ZTE (763 HK) plunged 4.7 per cent to HK$22.40 and its A-shares (000063 CH) tumbled 2.7 per cent to 40.68 yuan.