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Louise Moon

Deb Price

Good day traders.
The Shanghai Composite posted its third straight day of losses, while the Hang Seng ended down for the fourth straight day, amid ongoing US-China trade and tech tensions.
Catch up on the latest action below. Please send any feedback or questions to deb.price@scmp.com .
-- Louise Moon and Deb Price in Hong Kong 
 


Stocks Blog: Shanghai, Hong Kong extend losses amid ongoing US-China trade, tech tensions 

The bull sculpture at Exchange Square in Hong Kong. Photo: David Wong

At Happy Valley on May 22, 2019, Fearless Fire lived up to its name and won its race. Photo: Kenneth Chan


Liquor king Kweichow Moutai pours confidence back into shaken investors

Business

Markets

Economy

Employees arrange bottles of Moutai baijiu at the Kweichow Moutai factory in the town of Maotai in Renhuai, Guizhou province, China, on December 14, 2017.

FILE - In this April 26, 1984, file photo, Chinese President Li Xiannian, right, grins as he watches President Ronald Reagan drink Maotai during a toast in Peking. (AP Photo/Scott Stewart, File)

Logistics firms in China soar after report of Beijing probe of FedEx
Crystal Ball: Chinese local governments likely to help car companies, says Patrick Yuan of Jefferies
	 


5G-linked China stocks surge on news of coming licenses


Stocks

China markets

Hong Kong Stock Exchange

Live

Here's what we are watching this morning:
Overnight markets/ What futures foretell
 
-- On Friday in US markets, S&P 500 lost 1.3 per cent,  Nasdaq shed 1.5 per cent, and the Dow Jones Industrial Average fell 1.4 per cent.
-- Hong Kong futures are up 0.16 per cent at 26,761, while the China A50 futures are down 0.56 to 12,722.47.
IPO debuts:
--- Haitong UniTrust International Leasing (1905 HK)
Economic statistics/Central Bank action:
09:45am: China May Caixin PMI

Corporate events: earnings, meetings, news conferences:

Tingyi Holdings (0322 HK) and Zhejiang Chint Electrics (601877) annual general meetings.
Good reads: Kweichow Moutai appears to have reassured many of its investors that it is on the right track to continued big gains, Yujing Liu and Zhang Shidong report. Meanwhile, many small firms are caught in the crossfire of an escalating tech cold war between the US and China, Zen Soo and Celia Chen report. Kristin Huang looks into China's investigation of US delivery giant FedEx after Huawei accused it of unauthorized re-re-routing of some of its packages. 
 
 


Morning guidance 

Markets are searching for direction as the US-China feud grows, with mixed messages over the weekend. China said it was willing to work with the US to end the trade war, but at the same time blamed Washington for the collapse in talks and said it won't be pushed into concessions. Meanwhile, Trump called tariff a "beautiful word".
The Hang Seng Index started the week down, opening with a slight drop of 0.04 per cent to 26,889.03. In China, however, the Shanghai Composite rose 0.1 per cent to 2,901.74, while the CSI 300 of large caps gained 0.29 per cent to 3,640.61.
-- Louise Moon


Shanghai opens up, Hang Seng slips 

Financial leasing company Haitong UniTrust International Leasing (1905 HK) debuted a HK$2.3 billion (US$296 million) initial public offering this morning at the Hong Kong exchange, spinning off from its parent company Haitong Securities (SHA: 600837, HKG: 6837).
The foreign-funded company serves as the leasing platform for Haitong Securities, a Chinese brokerage, investment, and private equity firm, and provides financial leasing, loans, and factoring services to clients across industries, including transportation, logistics, health-care, and industrial equipment, according to a company filing.
The company’s listing is the sole IPO on the Hong Kong exchange this week.
It is trading flat, at HK$1.88
Haitong UniTrust International Leasing Co., the financial leasing arm of Haitong Securities, rings the gong on a US$296 million IPO this morning at the #HKEX pic.twitter.com/s0t7fPElvp
— Simone McCarthy (@simonelmc) June 3, 2019
-- Simone McCarthy


Haitong UniTrust bangs the gong on its opening day in Hong Kong

AAC Technologies (2018 HK) was maintained as a buy at Jefferies, with a price target of HK$56.
"Although pricing and order allocation are likely under challenge in iPhone in near-term, we think AAC is likely taking an upper hand in camera upgrades vs. pure optics players, due to value-adds from mechanical control (VCM, OIS)," analysts wrote in a new note about the maker of miniature acoustic components. 
Camera upgrades are shifting from optical to mechanical control. "AAC is better poised in this trend thanks to its electro-magnetic knowhow," the analysts wrote.
AAC slipped 0.4 per cent to HK$41.55 in early trading. 
-- Deb Price 
 


AAC Technologies maintained as buy at Jefferies

China’s official purchasing manufacturers’ index stayed level in May, at 50.2, which is the same reading as April. This was above analysts’ expectations of 50. Anything below 50 would indicate contraction.
The Caixin PMI measures the performance of the manufacturing sector, from a survey of 430 industrial companies.
-- Louise Moon


Caixin PMI stays steady at 50.2 

A lot happened over the weekend. This will catch you up.
On China’s side, the government said it was willing to work with the US to end the trade war, but also blamed the US for the collapse in talks between the world’s two largest economies, saying it was "solely to blame." China said it won’t be pushed into concessions. Vice Commerce Minister Wang Shouwen said the US had backtracked repeatedly since 2018.
On Sunday, Beijing released a white paper to say the trade war has done huge harm to the US economy. It said the US had used “intimidation and coercion” during talks in May.
On the US’ side, Trump called tariffs a “beautiful word”.
Meanwhile, the White House’s senior adviser Kellyanne Conway said Trump may ask Treasury Secretary Steven Mnuchin to meet with Chinese officials when he is in Japan next week, according to Bloomberg.
-- Louise Moon 


Trump: Tariffs 'a 'beautiful word'; China: US 'solely to blame' for trade talks collapse

With the trade dispute escalating and spilling over into tech, foreign investors have been pulling their money out of A-shares, as Jefferies China analysts point out in a new note titled, "China: Stuck in the Middle."

"(O)ur base case is the authorities will still need to fine tune policy but appear to be reluctant to press the ‘ease’ button at the same time as the US-China trade dispute unfolds as it could be perceived as being a panic reaction. Unfortunately, the tariff trade war is clearly being turned into a Digital War where the restriction of access to software and components prosecutes a containment of China’s technology ambitions," they write.
"Consumer staples are still seeing the best (earnings per share) revisions within the CSI 300 and almost the best % y-y eps growth overall. Hence, we would recommend real estate, consumer staples and would cut our view on China cyclicals. We would not be short the financials," they conclude.
-- Deb Price 
 


Crystal Ball: Jefferies recommends China real estate, consumer staples sectors 

The recent move by Guangdong Province to help beleaguered car makers -- in this case by increasing the availability of car license plates -- is likely to be followed by other Chinese cities, says car equity analyst Patrick Yuan at Jefferies.
This despite concerns about traffic congestion.
"Now we believe it is only a matter of time to see similar polices from Beijing, Shanghai, etc.," Yuan writes in a note sent out Sunday.
"Reported by Chinese local media (21jingji.com), (China Association of Automobile Manufacturers) said it is likely for all the car purchase-restricted cities to take some actions, to help car consumption and boost the local economy. Assuming 50% incremental supply of car plates from these seven cities in 2019, 260k more cars will be sold, or 1.1% of 2018 wholesales," Yuan writes.
"The estimated incremental sales from big cities looks negligible given the backdrop of -6% retail sales decline in Apr. However, we believe the loosening purchase restriction in Guangdong indicates that local governments are more than willing to respond even before central government's official policy comes. There could be unexpected stimulus from non-focus areas in our view. Meanwhile, other measures mentioned in (the National Development and Reform Commission's) draft policy are more likely to materialize soon, including the vehicle purchase tax cut for rural consumers. It may not be a direct tax cut this time, because the tax rate has become a part of the rigid law passed by the Congress. More likely, central government could directly subsidize rural consumers for the 50% purchase tax, for which we see little resistance in implementation."
-- Deb Price 


Crystal Ball: Chinese local governments likely to help car companies, says Patrick Yuan of Jefferies

Kweichow Moutai – the world’s most valuable alcohol maker that recently found itself in the hot seat over a controversial change in its sales distribution model – appears to have regained the confidence of many of its investors on the back of its largest-ever shareholder meeting, Yujing Liu and Zhang Shidong report.
“We will never do anything that harms the interests’ of shareholders,” said Kweichow Moutai chairman Li Baofang in a speech that lasted hours and was interrupted dozens of times by applause. “The controlling shareholder will never fight with small shareholders for benefits.”
Kweichow Moutai picked Li only a year ago, and he set his sights on cleaning up the distribution channel, long considered ripe for abuses.

 
Read full story here.
 


Shares of logistics firms in China soared after state-run newspaper Xinhua reported that China will investigate whether courier company FedEx damaged the rights of its clients. Traders are betting on domestic companies benefiting from the probe.
The investigation comes after Chinese telecoms giant Huawei, which has been blacklisted from the US, told Reuters it was reviewing its relationship with FedEx. It alleged FedEx had diverted two parcels for Huawei addresses in Asia, to the US, and had attempted to re-route others.
FedEx said it was an error. On its website, the New York-listed firm said it would “fully cooperate with any regulatory investigation into how we serve our customers”. Prior to that on Tuesday, it apologised on its social media account for the “mishandling” of Huawei packages and said there had been no “external pressure” to divert them.
On Monday, Sinotrans (601598 CH), GuangDong GenSho Logistics (603813 CH), China Master Logistics (603967 CH) and Guangzhou Jiacheng International Logistics (603535 CH) all broke the daily limit of a 10 per cent gain.
-- Louise Moon 


Logistics firms in China soar after report of Beijing probe of FedEx

Great Wall Motor (601633 CH) is up 2.54 per cent to 8.47 yuan in morning trading, after the India Economic Times reported it will invest over US$1 billion into India.
-- Louise Moon 


Great Wall Motor jumps over India investment 

Brokerage company Everbright Securities (601788 CH) shed 5.83 per cent to 10.50 yuan in morning trading, after its parent company was sued by China Merchants Bank in Shanghai.
In a filing to the stock exchange after trading hours on Friday, the brokerage said a senior partner of one of the bank’s funds, Shanghai JinXin Investment Consultancy Partnership Enterprise, had asked Everbright Capital to make up a shortfall of 3.48 billion yuan.
“The company views the relevant matter with high importance, actively reacts to and will further investigate the relevant situation,” said vice-chairman Yan Jun, in the letter.
-- Louise Moon 


Everbright Securities falls over lawsuit

Gaming stocks are sliding despite Macau’s Gaming Inspection and Coordination reporting a five-month high in gaming revenue on Saturday.
Revenue was 25.95 billion patacas (US$3.21 billion) in May, versus 25.5 billion patacas a year ago, and 23.6 billion patacas in April. Analysts had expected a drop of up to 4 per cent.
Gains were, however, kept in check by a slowdown in China’s economy, the US-China trade war and softer demand.
According to Reuters, May’s gross gaming revenue was slightly below sell-side estimated and VIP rolling volumes declined by a high-teen rate year-on-year in May.
All major players were down. Sands China (1928 HK) led declines, dropping 5.49 per cent to HK$33.65. Wynn Macau (1128 HK) shed 5.22 per cent to HK$15.44, while MGM China Holdings (2282 HK) fell 4.79 per cent to HK$11.52 and Galaxy Entertainment (0027 HK) lost 2.85 per cent to HK$46.
-- Louise Moon 
 


Macau casino stocks fall despite unexpected jump in gaming revenue 

Investors are hanging up on Xiaomi (1810 HK), sending the Chinese smartphone maker's stock down 6.2 per cent today to HK$8.98, marking a record low.
Bloomberg Intelligence analyst Anthea Lai says Xiaomi must increase its research and development spending and offline stores "before it can take premium smartphone market share from a Huawei struggling to procure US components."
The smartphone maker shook investor confidence with two straight quarters of sequential gross-profit falls.
In her note last week, she wrote, "The Mi-phone maker may find reviving smartphone shipment growth amid a China downtrend hard as it taps overseas markets with its Redmi series and tests higher price points with its Mi brand."
Of analysts tracked by Bloomberg, 25 call it a buy, seven a hold and two a sell, with a target price of HK$13.56.
-- Deb Price 
 


Xiaomi falls 6.2 per cent to record low 

The Shanghai Composite ended morning trading down 0.49 per cent to 2884.54.
All sectors fell, with the exception of the financials sector, which was marginally up 0.14 per cent. Technology was the biggest loser: It fell 1.4 per cent and was the only sector to drop more than 1 per cent.
Eight companies listed in Shanghai hit the daily limit increase of 10 per cent, comprising mostly of logistics and environment-related companies. Five companies, meanwhile, dropped by the maximum 10 per cent.
The CSI 300 of large caps in Shanghai and Shenzhen broke for lunch down 0.17 per cent to 3,623.67.
Three of its 10 sectors saw gains. The largest company gain was Shandong Gold Mining (600547 CH), which rose 5.24 per cent, and the biggest loser was brokerage Everbright Securities (601788 CH), which shed 7.44 per cent after being sued.
-- Louise Moon


Shanghai pulled down by technology amid escalating US-China tensions

The Hang Seng is struggling on its first day of trading in June, after posting its first monthly loss for the year in May.
All sectors but for communication services and industrials were trading down. 
Macau casino operators fell, with Sands China (1928 HK) the leading intra-day loser on the Hang Seng benchmark, with 4.9 per cent in losses to HK$33.75. Galaxy Entertainment (27 HK), another Macau casino operator, was down 2.6 per cent, to HK$46.15, in second place on losses.
Bucking the downward trend were rice cracker and snack foods maker Want Want China Holdings (151 HK), which was up 4.3 per cent to HK$5.83, and telecom giant China Mobile (941 HK), up 2.6 per cent to HK$70.25.
The Hang Seng was down 0.35 percent at 26,807.91 in morning trading.
-- Deb Price 


Hang Seng falling, unable to gain traction after monthly May loss

Investors need to look beyond the noise being generated by the US-China trade war and focus on the underlying health of the global economy, Mark D. Wiseman, the global head of active equities at BlackRock, the world’s largest asset manager, tells SCMP reporter Chad Bray.
There's no reason to believe that the current environment is not sustainable for a very long time, Wiseman said.
Fundamentals are “pretty darn good,” Wiseman said, noting that corporate debt and credit both appear to be manageable and there are very little signs of inflation.
“As an investor, it's very easy to get distracted by the most recent tweet or whatever else it may be,” according to Wiseman, who also is chairman of BlackRock Alternative Investors. “The reality is that, as you look around the world at the global economy today, we are in remarkably good shape.”
Read full story here. 


Forget the noise -- global economy is healthy, says BlackRock's Mark D. Wiseman

Traders aren't ready to get back into Hong Kong stocks as long as things are so unsettled between the US and China over trade and technology, says Louis Tse Ming-kwong, managing director of VC Asset Management.
They are "wait and see" traders, looking ahead to the G20 economic summit in Japan, which presidents Donald Trump of the US and Xi Jinping of China will attend. The gathering of the leaders representing more than 80 per cent of global GDP will be in Osaka on June 28-29. 
The unraveling of what had seemed like a deal close to completion roiled markets in May -- and continued to be felt today.
Tse predicts the Hang Seng could test the lower ground towards 26,000 this month, but the direction of markets completely depends on any news that comes out of the G20 summit on whether Xi and Trump meet, and the outcome. It is trading intra-day at 26,840.59. It broke through the psychologically important threshold of 27,000 this past Friday  for the first time since mid-January.  
“If someone asked me to sell or buy, I would have second thoughts (recommending to stay put). It is politics, not just economics. It is difficult to anticipate what is next.”
Now traders are mostly reacting to any individual company news, he said.
“At the moment it is very cautious, not optimistic," he said.
-- Louise Moon 


In Hong Kong, investors are frozen by trade uncertainty, says Louis Tse Ming-kwong

China will roll out commercial 5G licences under the Ministry of Industry and Information Technology (MIIT) “in the near future”, according to state news Xinhua.
“As always, we welcome domestic and foreign enterprises to actively participate in China’s 5G network construction and application,” it said, without further details.
Beijing had granted licenses at the end of last year to the country’s three state-owned carriers to conduct trials for 5G deployment, but has yet to approve full commercial deployment.
The statement comes at a sensitive time in the 5G world, after the US blacklisted Chinese industry leader Huawei over security concerns.
Telecoms companies are on the up, presenting one of the few buying opportunities in an otherwise quiet market, said Louis Tse Ming-kwong, managing director of VC Asset Management.
Telecommunications were the largest gaining sector on the Hang Seng in early Monday afternoon trading, rising 3.4 per cent. China Mobile (0941 HK) was the biggest gainer among companies, up 3.6 per cent. The other two largest telecoms companies, China Telecom (0728 HK) and China Unicom (0762 HK), rose 3 per cent and 2.3 per cent respectively.
-- Louise Moon 


5G-linked China stocks surge on news of coming licenses  

Fujian-based menswear brand China Lilang (1234 HK) fell to its lowest level since early February after it recorded a slower-than-expected order growth in its 2019 winter trade fair. The fashion group posted a 10-13 per cent growth in total order value.
An escalation of the US-China trade war and slowdown of retail sales growth in May, as well as a slight decrease in average selling prices as raw material costs fell, is to blame, according to the company.
The stock was down 2.73 per cent as it neared the end of trading for the day, to 6.77 yuan.
-- Louise Moon 


Menswear China Lilang falls amid trade fallout 

The Shanghai Composite posted its third consecutive day of losses, as trade and tech tensions continue between the world's two largest economies.
Shanghai closed down 0.3 per cent to 2,890. The last time it record three straight days of losses was in late April.
All sectors but financials, consumer staples and communications services were down.
Eleven companies either hit the 10 per cent daily limit or right under. Losers at 9 per cent or more totalled 21 companies. 
-- Deb Price 
 


Shanghai benchmark posts third consecutive day  of losses 

The Hang Seng recorded its fourth straight day of losses.
Telecommunications was the top gaining sector, led by China Mobile (0941 HK), which rose 2.9 per cent. The biggest loser on the Hang Seng was casino giant Sands China (1928 HK), which shed 3.5 per cent.
The Hang Seng closed down just a hair, 0.03 per cent, to 26,893.86. At the end of April, it had five straight days of losses.
-- Louise Moon 
