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Georgina Lee

Deb Price

Good day, traders --
The Shanghai Composite ended with a fifth straight week of losses and the Hang Seng posted its third straight week of losses, amid the latest in the Trump trade and tech storms.
Catch up on the action below. If you have questions, please send them to deb.price@scmp.com .
-- Georgina Lee and Deb Price in Hong Kong 
 


Stocks Blog:  Shanghai ends with fifth straight week of losses amid Trump's trade, tech storms 

A woman stands at a brokerage firm in Shenyang, China April 11, 2019. Photo: CNA


Business

Markets

Economy

Veterinary vaccine stocks shoot up over 'first step' in African swine flu vaccine
Jefferies says 5G delay 'inevitable' in China 


Veterinary vaccine stocks shoot up over 'first step' in African swine flu vaccine


China stock market

Stocks

Hong Kong Stock Exchange

China economy

Live

Here's what we are watching this morning:
Overnight markets/ What futures foretell
 
-- Overnight in US markets, S&P 500  fell 1.19 per cent,  Nasdaq was down 1.58 per cent, and the Dow Jones Industrial Average was down by 1.11 per cent.
 -- Hong Kong futures are down 0.51 per cent, while the China A50 futures are up 0.3 per cent.
IPO debuts:
None
Corporate events:
 
Annual general meetings: Yanzhou Coal Mining (1171 HK), China Resources Gas Group (1193 HK), Sands China (1928 HK), AAC Technologies (2018 HK), Zijin Mining Group (2899 HK), China Resources Beer (0291 HK), China National Building Material (3323 HK), Sany Heavy Industry (600031 CH), Gemdale Corporation (600383 CH), Huayu Automotive Systems (600741 CH), China Citic Bank (0998 HK)
Economic statistics:
None
Good Reads:  Chinese food delivery services giant Meituan Dianping posted better-than-expected earnings for the quarter ended March, reports Yingzhi Yang. Hong Kong’s government will keep rolling out cooling measures designed to rein in skyrocketing property prices even though JPMorgan says they have a very limited effect, reports Pearl Liu.  And Celia Chen and Yingzhi Yang look at Chinese drone maker DJI, which is suddenly in the spotlight over a US security warning. 
 


Morning guidance 

China Railway Group is getting a fresh assessment.
Its A shares (601186 CH) have been raised to overweight by JPMorgan. 
Meanwhile, Macquarie reinstated its H shares (1186 HK) with a neutral rating, and a price target of HK$9.50, or 5 per cent above its close. Macquarie did the same for its A shares, and put a price target of 9.80 yuan, or a 4.4 per cent above its close.
-- Deb Price 


China Railway Group sees rating changes by JPMorgan, Macquarie

Zhenro Properties Group (6158 HK) was rated a new buy at Haitong International, with a price target of HK$7.50, which would be a 57 per cent increase from its close.
The Chinese real estate developer builds and markets residential properties, hotels and office buildings.
Of analysts tracked by Bloomberg, five call it a buy and none a hold or sell, with a consensus price target of H$6.80.
-- Deb Price  
 


Zhenro Properties rated new buy at Haitong 

Markets are trying to find direction on the mainland and in Hong Kong, after a very rocky week.
The Hang Seng Index is up 0.24 per cent at 27,331.30.
Tech and financial stocks led the gain. Techtronic Industries (669 HK) was up 3.81 per cent at HK$50.4, while Sunny Optical (2382 HK) rose 1.84 per cent to HK$69.15. BOC (2388.HK) was up 1.82 per cent to HK$30.7.
All leading Chinese benchmarks also opened higher, with the CSI 300 which tracks blue chips listed on the Shanghai and Shenzhen bourses, up 0.57 per cent, or 20.3 points at 3,604.27.
The Shanghai Composite Shanghai opened up but was lost traction and was down by 0.14 per cent at 2,848.
The Rare earth and magnetic material sector was performing well, with several stocks already hitting the daily up-limit minutes after market opened. JL Mag Rare-Earth(300748 CH) up 10 per cent to 37.06 yuan, while Zhejiang Dehong Automotive Electronic & Electrical (603701 CH) was up 9.97 per cent at 14.89 yuan. Grinm Advanced Materials (600206 CH) rose 2.38 per cent, at 9.47 yuan.  A gauge tracking the sector with 32 stocks in China saw 24 stocks trading higher this morning.
-- Georgina Lee 


Hong Kong headed up, mainland markets mixed 

Meituan Dianping (3690 HK) is trading up 3.3 per cent at HK$60.05 after beating estimates in its first quarter earnings report.
The food delivery services giant narrowed its net loss in the first quarter to 1.4 billion yuan (US$203 million), compared with a 21 billion yuan loss in the same period a year ago. It showed strong revenue growth across all its major business segments. That was ahead of the 2.7 billion yuan loss analysts surveyed by Bloomberg expected.
"Meituan's market-leading scale in connecting online users to offline services such as food delivery and in-store dining should help generate medium-term efficiencies in customer and merchant acquisition, even as competition from Alibaba threatens," Bloomberg Intelligence analysts wrote in a new note. 
"Meituan's broadening of service categories and provision of technology solutions for merchants will also aid sales and profit growth. Tencent holds a 21% stake in Meituan, the leading service e-commerce platform in China, with 412 million transacting users in the 12 months ended March and 138 billion yuan in gross transaction volume in 1Q," it said.

-- Deb Price 


Meituan Dianping jumps on earnings beat 

Lenovo Group (992 HK) was trading flat after declining minutes after the Hong Kong market opened. The company on Thursday reported 2019-March-ended full year net profit at US$597 million, a turnaround from the net loss of US$189 million a year ago. Helping the turnaround was its fourth quarter profit, which rose a strong 176 per cent, beating the highest end of analysts’ estimate.
Company management reportedly said after the results announcement that it is “well poised” to navigate the ongoing turbulence in the macro-economic environment, including the protracted and escalated US-China trade war.
Goldman Sachs upgraded the stock to “buy” from “neutral”, with a price target at HK$7.50, which implies an upside of  about 28 per cent from Thursday's close at HK$5.88. It is trading now at HK$5.87.
-- Georgina Lee


Lenovo Group shares flat after reporting a turnaround in 2018-19 full year results

"The US export ban on Huawei has led to chaos in 5G rollout plans globally, as it may significantly reduce Huawei's ability to supply 5G equipment to its telco customers both in and outside China," Jefferies writes in a note today. 
"We believe telcos that have been using Huawei (mainly in China, Europe and Asia) will need to rethink their 5G buildout plan and vendor choice. The Chinese telcos will likely try to stick to Chinese vendors as far as possible. However, if Huawei is out of the game, we would view relying mainly on ZTE and Datang (with a minor share going to Ericsson and Nokia) as a risky strategy as the US could eventually put those two Chinese vendors on an export ban in order to set back China's 5G ambition. Therefore, 5G delay is inevitable in China, in our view."
Jefferies equity analysts Edison Lee and Timothy Chau say US tech firms stand to be the biggest losers in the long term. 
"If the US-China tech stand-off lasts, 3GPP will possibly break down, and we believe China will develop its own version of 5G SA. In other words, the US may have its own version, and Europe may have to choose which version to follow," the analysts wrote. "Despite a delay in rollout, China should eventually be able to develop its own semiconductor products, and we believe US tech firms such as Qualcomm will lose China as a market permanently," they said.
"If the US-China tech stand-off lasts, 3GPP will possibly break down, and we believe China will develop its own version of 5G SA," they wrote. "In other words, the US may have its own version, and Europe may have to choose which version to follow. Despite a delay in rollout, China should eventually be able to develop its own semiconductor products, and we believe US tech firms such as Qualcomm will lose China as a market permanently."
-- Deb Price 
 


Jefferies says 5G delay 'inevitable' in China 

Oil stocks are a drag on blue chip gains in Hong Kong.
 Sinopec (386 HK), PetroChina (857 HK) and CNOOC (883 HK) fell, mirroring declines seen in global crude benchmarks overnight in Europe and the US.
On Thursday, energy stocks were the worst performing sector in S&P 500, as the global benchmark Brent crude trading on ICE Futures Europe for July delivery fell to a two-month low, by 4.6 per cent at US$67.76 a barrel. On the New York Mercantile Exchange, West Texas Intermediate crude for July delivery dropped 5.7 per cent , at US$57.91 a barrel. Market participants said concerns on near-term appetite for crude resurfaced, amid doubts on whether the protracted US China trade war could reach a resolution.
Sinopec pared early losses to last trade down 0.2 per cent at HK$5.60. CNOOC was down 0.76 per cent at HK$13.02; while Petrochina was down 1.33 per cent at HK$4.45.  
The Hang Seng Index was up 0.32 per cent, or 86.15 points at 27,353.28.
-- Georgina Lee


Oil stocks fall after Brent crude drops to two-month low

As the trade war between the world's two largest economies gets hotter, China policymakers are likely to launch a consumption subsidy programme, BofAML says in a new note by economists Helen Qiao and Xiaojia Zhi. They see this move as more likely than boosts to infrastructure and property investment.
"As the US-China trade negotiations have entered a period of 'brinkmanship', Chinese policy makers may try to address growth stability and confidence issues more urgently," the economists write.
The BofAML China Activity Coincident Tracker (BofAML China ACT) dropped to 3.9% year-on-year in April from a revised reading of 5.7% in March. That was an improvement over the bottom level of 3.0 per cent in November, but not by much. Real growth in exports was much weaker -- an estimated 3.9 per cent year-on-year in April from 18.7 per cent in March. So were retail sales -- to -0.2 per cent from 3.0 per cent.  Electricity production and fiscal revenue growth were drags, they said.
"We think the underlying state of the economy may be stronger than meets the eye. Firstly, the March production and exports were likely boosted by the Lunar New Year effect and front-loaded production for the value-added tax cut in April. This means those temporary factors lifting March data likely turned into a drag for April. Secondly, retail sales weakness was likely related to postponed purchases of big-ticket items on the expectation of upcoming consumption subsidies," they wrote.
-- Deb Price 


China will intensify policy easing, predicts BofAML 

While several rare earth stocks hit the 10 per cent limit today on the mainland, Hong Kong-traded  China Rare Earth Holdings (0769 HK) is getting hammered.
The stock shot up 132 per cent on Tuesday. The company, which produces and sells rare earth oxides, benefited from a visit to a Chinese rare earths company -- JL Mag Rare-Earth (300748 SZ) -- by President Xi Jinping on Monday.
It is trading down 5 per cent today, at HK$0.57 per cent. 
China is the world’s largest producer and consumer of rare earths. Its exports supply about 80 per cent of the global demand. Rare earths are a group of 17 elements that are crucial to the production of hi-tech products. Rare-earth magnets are used in such things as electric cars, earphones and computer hard drives. 
Xi's visit sparked speculation that Beijing might consider using rare earths as a weapon against the US in its ongoing trade negotiations with the Trump administration.  The minerals are among the few items excluded from the US’ plans to impose further punitive tariffs on Chinese imports.
On the mainland, JL MAG Rare-Earth  (300748 CH) surged again to its upper limit.  Zhejiang Dehong Automotive Electronic & Electrical (603701 CH) also surged to its upper limit, at 14.89 yuan. A gauge tracking 32 companies in the sector was up 0.66 per cent, with 16 companies up, 15 trading down and one flat. Grinm Advanced Materials (600206 CH) was up 5.95 per cent at 9.8 yuan.
China Rare Earth Holdings' relative strength index (RSI), which measures the speed and change of price movements, was at 79. An RSI of above 70 indicates the stock is overbought and is due for a correction.
-- Georgina Lee 


China Rare Earth Holding -- star gainer in Hong Kong this week -- is tumbling 

Xiamen Meiya Pico Information (300188 CH), a maker and service provider of digital forensic technology and network information security,  was up 4 per cent at 16.55 yuan, after the Shenzhen-listed company clarified Thursday in an exchange announcement that it owns the intellectual property to the majority of its software products.
It also said that majority of the suppliers for its hardware are domestic Chinese companies, and that overseas sales represented less than 1 per cent of total sales revenue.
Bloomberg reported on Thursday that Xiamen Meiya Pico was one of the five companies targeted by the Trump administration, which is considering cutting off the export of vital American technology to them.
Another is voice-recognition company Iflytek (002230 CH), which dropped by the 10 per cent daily limit on the news Thursday, and is down 1.2 per cent today.
Xiamen Meiya Pico said in its announcement that the possibility it is being targeted by the Trump administration "is only coming from selective media report, and not the official information from the US government."
-- Georgina Lee 
 
 


Xiamen Meiya Pico jumps after suggesting it would not be hurt much if targeted by US

Veterinary vaccine stocks are rising after China announced a "first step" towards development of a commercially viable vaccine against African swine fever, which is roiling the world's largest pig market.
Animal health researchers in northeastern Heilongjiang province have isolated a strain of the virus, which is deadly to pigs and has spread rapidly across China since it was first detected last August. 
“This is basic research,” said Zhao Dongming, lead researcher at the Harbin Veterinary Research Institute of the Chinese Academy of Agricultural Sciences. “It is the first step, but it is hard to say when can we start to produce a vaccine.”
China Animal Husbandry Industry (600195 CH) was up 6.1 per cent at 12.48 yuan.  Jinyu Bio-technology (600201) rose 4.3 per cent to 15.21 yuan. Pulike Biological Engineering (603566 CH) was up 7.1 per cent to 12.90 yuan. And Tianjin Ringpu Bio-Technology shot up 7.1 per cent to 14.71 yuan. 

-- Deb Price 


Veterinary vaccine stocks shoot up over 'first step' in African swine flu vaccine

China stocks that partners with or are customers of Huawei Technologies’ chip arm, HiSilicon, fell despite brokerage Jefferies saying that Huawei would be able to weather a reported suspension of business with UK chip designer ARM.
Jefferies analyst Rex Wu wrote in a note on Wednesday that Huawei Technologies will be able to rely on its own Kirin chips, which are designed by HiSilicon. The assessment followed BBC reporting on Wednesday that ARM had told staff to suspend business with Huawei, and its subsidiaries, in order to comply with recent a US trade clampdown. Wu said any suspension from ARM licences will have limited impact on Huawei’s smartphone production, at least in the short-term.
Huizhong Instrumentation (300371 CH) lost 9.98 per cent to 11.64 yuan; Hubei TKD Crystal Electronic Science and Technology (603738 CH) dropped 9.86 per cent to 13.9 yuan, while Wutong Holding Group (300292 CH) was down 9.26 per cent, at 6.76 yuan.
-- Georgina Lee 


China tech stocks linked to Huawei Hisilicon chips drop on ARM business suspension concern

Francis Lun, chief executive officer of Geo Securities, says Hong Kong's stock market is in a "wait and see" period, as investors watch for new signs on whether it is possible for China and the US to patch up their frayed relations and get back to trying to resolve their differences on trade. 
“(US President Donald) Trump said China is going to come around and sign the agreement very soon, because China is not doing well. Maybe he is right – we don’t know,” Lun said.
“Investors are waiting for anything, but there is nothing yet. [The market] has recovered from the fall of the last two days when Chinese and American official pointed fingers at each other. There is no finger pointing now.”
Lun noted his surprise to that today's top gainers are China Mobile and Ping An, as opposed to the usual Tencent or AIA, saying investors are just not buying.
The Hang Seng Index is up 0.45 per cent at 27,389.88. 
-- Louise Moon 


Hong Kong traders stuck in 'wait and see' moment over trade impasse, says Francis Lun

The scramble to get in has turned in to the scramble to get out.
Traders with stakes in Hong Kong-traded China Rare Earth Holdings (0769 HK) -- which shot up 32 per cent on Tuesday -- are racing out. 
Shares are down 18.3 per cent today, at HK$0.48.The company, which produces and sells rare earth oxides, benefited from a visit to a Chinese rare earths company -- JL Mag Rare-Earth (300748 SZ) -- by President Xi Jinping on Monday.
A lucky and attentive trader who got in at the start of the frenzy Tuesday and bought HK$10,000 of China Rare Earth -- and sold at the highest point -- would have walked away with profits of HK$10,476 (minus broker and other fees).
-- Deb Price 


China Rare Earth plummets as traders race to cash out 

Two weeks after an activist short seller attacked a Hong Kong-listed company, investors look unconvinced by the company’s rebuttal as the share price continued to free fall.
Hong Kong-listed events organiser Mega Expo Holdings (1360 HK) plummeted by as much as 46 per cent after trading in its stock resumed in the afternoon session, following the company’s clarification statement on a short-seller report that said it had a valuation of zero earlier.
Trading of Mega Expo was suspended on May 9, when activist short seller Blue Orca Capital alleged in a report the company had undergone a stealth reverse merger through sham acquisition transactions, and that “shadowy networks with ties to criminal enterprises such as prostitution” now controlled the company.
Mega Expo said in a stock exchange filing today that the claims in the report are “untrue and misleading”, and the conclusions drawn on its financial results are incorrect. It also denied its acquisitions in recent years were linked to the shady network alleged by Blue Orca.
"The Company takes this matter very seriously and urges shareholders to treat the Short Seller’s Report and the Allegations with caution. The Company reserves its right to take legal action against Blue Orca and those responsible for the Short Seller’s Report," Mega said in a statement released through its publicist.
Shares of Mega Expo were trading 16 per cent lower.
-- Yujing Liu 
 


Mego Expo, still reeling from short-seller attack, issues strong warning

The Shanghai Composite Index closed flat and wrapped up the week with a fifth straight week of losses. Clobbered tech stocks pared back gains in the benchmark.
Shanghai barely eked out a gain today -- up 0.02 per cent, or 0.48 points to 2,853. It was down 0.9 per cent for the week.
The CSI 300, which tracks blue chips listed on the Shanghai and Shenzhen bourses, ended up 0.28 per cent, or 9.94, at 3,593.91. The Shenzhen Component Index was down 0.37 per cent, or 32.76 points at 8,776.77.
In Shanghai, oil also dragged down gains in the index, with 360 Security Tech (601360 CH) down 2.93 per cent at 20.88 yuan, and PetroChina down (601857 CH) down 0.56 per cent at 7.16 yuan. But keeping the index in positive territory was liquor king Kweichow Moutai (600519 CH), up 2.03 per cent at 878.5 yuan.
Across both the Shanghai and Shenzhen markets, tech stocks related with Huawei Technologies’ chip arm Huawei Hisilicon were the worst performing sector, as sentiment continued to be hurt by reports about UK-based ARM’s plan to suspend business with Huawei and its subsidiaries, in order to comply with a recent US trade clampdown.  Huizhong Instrumentation (300371 CH) lost 9.98 per cent to 11.64 yuan, and Hubei TKD Crystal Electronic Science and Technology (603738 CH) dropped 9.99 per cent to 13.88 yuan.


Shanghai ends with fifth straight week of losses

Hang Seng Index closed 0.3 per cent higher, but closed with its third straight week of losses, which this week totaled 2.1 per cent. 
The Hang Seng ended the day up 86.8 points, at 27,353.93, mostly from investors who were covering their short positions after the nearly 680 points drop over the previous four days this week has caused some investors to square their positions.
Leading the Hang Seng higher was AIA (1299 HK), up 0.73 per cent, at HK$75.45; while Ping An Insurance (2318 HK) was up 0.66 per cent at HK$83.8. Geely Automobile (175 HK) was up 2.3 per cent at HK$12.46.
Alex Wong, director of Ample Finance Group, said the gains seen in the Hang Seng Index were due to investors buying on short covering, after the sizable drop in the benchmark over the past four days.
“At this stage, the market is dominated primarily by bearish investors. If there is no further positive news flow over the weekend, I expect that the Hang Seng Index would face downside pressure on Monday,” Wong said.
-- Georgina Lee 


Hang Seng closes with third straight week of losses