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Georgina Lee

Deb Price

Good day, traders —
Catch up on the day's action below. Please send any questions or feedback to deb.price@scmp.com .
— Georgina Lee and Deb Price in Hong Kong  
 


Stocks Blog: Traders wanted positive news on lower rates — and US Fed chairman Powell delivered

An investor checks out stock prices in Nanjing, capital of east China's Jiangsu Province, March 4, 2019. Photo: Xinhua 


Business

Markets

Budweiser's mega IPO goes flat with Hong Kong investors
Gold-linked stocks do well in China as gold rises to US$1,424


Promising morning rallies in Hong Kong, Shanghai benchmarks lose steam as day wears on. In Shanghai, traders are still worried the coming hot tech board is siphoning off money and will hurt share prices in the broader market. 


Stocks

China markets

China stock market

Hong Kong Stock Exchange

Live

Here's what we are watching this morning:
Overnight markets/ What futures foretell
-- Overnight in US markets, S&P 500 was up 0.5 per cent,  Nasdaq gained 0.8 per cent, and the Dow Jones Industrial Average was up by 0.3 per cent.
-- Hong Kong futures are 0.37 per cent , while the China A50 futures are up 0.7 per cent.
IPO debuts:
CIMC Vehicles (2039 HK) debut in Hong Kong
Economic statistics/Central Bank action:
-- June foreign direct investment in China
Corporate events: None to note.
Good reads: Hong Kong’s prime offices are losing their cache as  the US-China trade war bites, reports Sandy Li. 
 


Morning guidance 

The Shanghai Composite rose 0.4 to 2,928. It had fallen for the previous three straight days.
The Hang Seng Index was ahead by 0.9 per cent to 28,477.16.
Trading sentiment was boosted by the overnight hint by US Fed chairman Jerome Powell that rates will be lowered at the end of the month.
— Deb Price


Markets open up on Fed rate-cut hint

Air China got upgrades to buy by Goldman for its shares listed in Hong Kong and the mainland.
Air China (601111 CH) was given a price target of 12.40 yuan. It was trading up 0.3 percent to 9.10 yuan in an advancing market.
Air China (753 HK) has a new price target of HK$10.20. It was up 0.6 per cent to HK$7.90.
— Deb Price 
 


Air China gains altitude as Goldman hands out a pair of 'buy' upgrades

Gold-related stocks surged in China, with a gauge tracking 32 gold and precious metal related stocks all trading higher.
Their gains mirror the spot gold price surge overnight, as spot gold jumped 1 per cent to clear back above the US$1,400, after Federal Reserve chairman Jerome Powell told the US Congress that US economic uncertainties have increased in recent months, adding that the risk of “weak inflation will be even more persistent than” the Fed currently anticipated.
The dovish comment is seen to have buttressed the case for a rate cut, with investors betting an at least 25 basis point cut later this month during the Federal Reserve Policy meeting on July 30-31.
The Fed’s signal for possible monetary easing has increased the appeal of gold as a safe haven asset. The dollar index, which tracks the greenback against a basket of currencies, fell to its weekly low of 97.
In Asia trading, the rise of spot gold continues, with it climbing up 0.4 per cent to US$1,424.55.
Shandong Humon Smelting (002237 CH) is up 7.6 per cent at 17.33 yuan; Yintai Resources (000975 CH) is up 6 per cent at 13.31 yuan; Shandong Gold Mining (600547 CH) is up 5.2 per cent at 40.92 yuan; and Hunan Gold (002155 CH) is up 4.1 per cent at 9.63 yuan.
— Georgina Lee 


Gold-linked stocks surge on Fed dovish comments

Energy stocks are driving gains on the Hang Seng, though all sectors are up.

Chinese oil and gas major CNOOC (883 HK) led percentage gains, rising 3 per cent.  PetroChina (857 HK) was up 2.6 per cent, while China Petroleum and Chemical (386 HK) rose 2.2 per cent. 

Property developers shot up, rallying on the hint by the US Fed that a rate cut is likely ahead later this month. Henderson Land (12 HK) was up 2.5 per cent.
Only one of the 50 stocks on the Hang Seng was down, China Unicorn (762 HK) and by only 0.2 per cent.
The Hang Seng is up about 1.2 per cent. It fell the past three days.
 
-- Deb Price 


Energy, property pushing up Hong Kong's Hang Seng 

The Shanghai Composite Index, which fell the past three days, is up 0.7 per cent, with a broad rally in all sectors, though it has pulled back some.
Materials and communication services led gains among sectors.
Bucking the trend was Seazen Holdings (601155 CH), tied to billionaire Wang Zhenhua, who was put in the spotlight last week after news of his arrest for alleged child molestation. It was down 0.2 per cent.
The Shenzhen Composite Index was up 1.1 per cent, with all sectors gaining. Energy and consumer discretionary were the top gaining sectors.
In early trading, 13 stocks in Shenzhen had hit or nearly hit the 10 per cent upside limit, many of them in the materials sector, such as NanJing Sanchao Advanced Materials, which produces cutting and machine tools.
— Deb Price  
 


Shanghai staging broad rally 

One direct beneficiary of interest rate cuts is property stocks. While it’s unclear whether Hong Kong banks will follow the US if its cuts rates as now hinted, stock investors jumped in to buy property stocks. Lower interest rates make it cheaper to buy or invest into properties.
Overnight, dovish comments from Federal Reserve chairman Jerome Powell buttressed expectations for a rate cut at the Federal Reserve Policy meeting on July 30-31. In response, yields of two-year US treasury notes dropped the most in three weeks, plunging 7.9 basis points to 1.825 per cent, while the 10-year yield was flat, at 2.06 per cent.
UBS Chief investment office (CIO) says the stronger performance in Hong Kong landlords is largely driven by falls in US 10-year Treasury yield in recent months, as in a lower rate environment, investors are attracted by growing and resilient yields offered by Hong Kong  property real estate investment trusts (REIT) and landlords.
“We project HK landlords and REITs to deliver core income growth of 7% (compound annual growth rate) over 2019-2001. Hence, we still consider the segment offers quality yields under the current market condition,” analysts including Eva Lee and Dennis Lam wrote in a research note this week.
UBS CIO however said that as Hong Kong home prices have shot up 11 per cent and total property sale volumes have risen around 40 per cent so far this year, it believes the upside is limited for home prices for the rest of 2019. It expects Hong Kong home prices to be flat, or up just 1 per cent during this second half.
Henderson Land (12 HK) was up 2.2 per cent at HK$43.45; Sun Hung Kai Properties (16 HK) was up 1.7 per cent at HK$133.9 ; New World Development (17 HK) was up 2.1 per cent at HK$12.46, while Link REIT (823 HK) was up 0.9 per cent at HK$98.15.
— Georgina Lee 


Property stocks in Hong Kong get the 'Powell boost'

Shares of Johnson Electric (179 HK) plunged 8.4 per cent to HK$15.88 — its lowest since June 18 —  after it said in an exchange filing after market close Wednesday that sales for the quarter ended June 30 were down 12 per cent from a year ago, to US$767 million.
"The Board anticipates that the Group’s unaudited profit attributable to shareholders for the six months ending 30 September 2019 will be substantially lower than the figures (a year ago),” the motor maker said in the filing.
Foreign exchange rate movements dragged down the group’s sales by US$27 million during the quarter, it said, adding that this was mainly due to weaker euro and the yuan against the US dollar compared to their respective levels a year ago.
“The global automotive industry is presently experiencing a significant decline in light vehicle production volumes in all major regions of the world, led by China,” it said, adding that automotive products sales were down 10 per cent during the quarter.
— Georgina Lee


Johnson Electric shares plunge after it reports quarterly sales decline

CIMC Vehicles (Group) (1839 HK) started trading on Hong Kong’s main board today.
Its shares fell in their trading debut on the Hong Kong stock exchange, with an opening price of HK$5.90 from an initial public offering price of HK$6.38, or a 7.5 per cent discount. It was last trading at HK$6.13.
CIMC Vehicles is a global semi-trailer company that makes and sells semi-trailers and truck bodies for specialty vehicles. According to a report by F&S, they have been the world’s largest semi-trailer manufacturer for five consecutive years since 2013, occupying a 10.3 per cent market share in 2017 by sales volume of semi-trailers.
The group plans to use proceeds to develop new manufacturing and assembly plants in the US and Europe, repay loans, among other things.
 
CIMC Vehicles Group banged the gong today @HKEXGroup pic.twitter.com/6lkwJr24vb
— Joy Pamnani (@joypamnani) July 11, 2019
— Joy Pamnani
 


Banging the Gong: CIMC Vehicles debuts in Hong Kong

Shenzhen-listed Zoneco Group (002069 CH) dropped after disclosing its chairman and president was barred from China's securities market for life,ordered to step down from any listed or unlisted companies and fined.
Shares were down 3.8 per cent, at 3.29 yuan.
In an exchange announcement Wednesday after market close, it said it had been notified by the China Securities Regulatory Commission (CSRC) of the actions against its chairman and president, Wu Hougang.
The company and some senior executives were handed out penalties, including a 300,000 yuan fine for Wu. Zoneco, which breed, raises and distributes aquatic products such as sea cucumbers, abalone and sea urchins, was fined 600,00 yuan.
The CSRC’s order came after its investigation revealed that the company falsified financial results for its 2016 and 2017. It concluded that several senior executives violated securities laws. The company executives have the right to petition against the penalties with the CSRC.
“The operations of the company remains normal ... the company and the relevant executives ... may petition against the proposed penalties,” it said in the exchange announcement.
— Georgina Lee 


Zoneco Group falls as chairman is censured by securities watchdog

China is likely to see vehicle sales drop again this year. Car sales were down for the first half this year by 12.4 per cent from a year ago to 12.3 million, according to China Association of Automobile Manufacturers (CAAM).
For June alone, car sales dropped 9.6 per cent to 2.06 million units. If the forecast by CAAM, as reported by Reuters, holds, then it would be the second straight year of decline after the 2.8 per cent drop in 2018.
It was a brighter story for new energy vehicles. Sales rose 80 per cent in June to 152,000 vehicles, and for the first half of the year, new energy vehicle sales rose 50 per cent to 617,000.
But entry-level electric car makers that are selling EVs at 60,000 yuan or below after subsidies stand to be hit by a scaling back of subsidies by Beijing, according to Brian Gu, president of Xpeng, a electric vehicle startup backed by multiple venture capital investors such as Hillhouse, Alibaba, IDG Capital and others.
Automobile stocks were mixed in Hong Kong: GAC Group (2238 HK) was down 2.9 per cent at 7.97 yuan; Greatwall Motor (2333 HK) was down 1.5 per cent at HK$5.72; and Geely Auto (175 HK) was down 1.2 per cent at HK$11.86.
But BAIC Motor (1958 HK) was up 2.4 per cent at HK$5.18; while BYD was up 0.3 per cent at HK$47.75.
The Hang Seng at the lunch break was up 1.2 per cent.
— Georgina Lee 


China on track for second year of falling car sales 

China Oilfield Services (2883 HK) surged 5.5 per cent in morning trading and could be driving the rally of energy stocks on the Hang Seng today, said Louis Tse Ming-kwong, managing director of VC Asset Management.
"It's like spotting a cuckoo before the spring," Tse said, as China Oilfield's rally could signal potential activity in the oil and gas sector.
But retail investors betting on oil should be aware of the inherent risks of energy stocks, he said.
"The Middle East is like a landmine now. Iran doesn't want to play this nuclear agreement [with the US] anymore. That creates a kind of negative sentiment there," said Tse.
"Energy is always playing with politics. We have to watch out, there's a lot [going on] behind the scenes that laymen like us won't know is going on," he said.
Meanwhile, other sectors on the Hang Seng are also up on the US Federal Reserve's signal of a rate cut later this month. This euphoria, Tse said, could last longer.
"Before any sizable IPO's listing day, the market will be quite steady. Because if the market drops heavily, who will want to subscribe to the heavyweights like Budweiser?," Tse said, referring to the beer IPO on July 19.
Budweiser Brewing, the Asian arm of the world's largest brewer, is expected to be the world's biggest IPO so far this year, and could raise US$9.8 billion.
— Daryl Choo 
 


China Oilfield Services surge could be driving energy rally, says Louis Tse

Castor Pang, head of research at Core Pacific-Yamachi, said Hong Kong and Chinese markets weren't especially moved by news the US may cut rates, as expected.
“A rate cut from the US is not new news, and I also also doubt whether Hong Kong banks would follow suit to also cut rates in lockstep with the US,” said Pang. He noted that Hong Kong banks had only raised rates once when the Federal Reserve raised rates nine times between the end of 2015 and earlier this year.
He also does not believe China's central bank is going to cut its benchmark interest rates, as doing so could potentially weaken the yuan, which wouldn't be helpful in trade negotiations  with the US.
“The Shanghai market is lacking direction currently. Adding the imminent debut of the tech board in Shanghai later this month, it has inevitably dampened some level of trading appetite on the main board,” said Pang.
The first batch of 25 companies will start trading on Nasdaq-styled Shanghai tech board STAR on July 22. Reuters reported that 21 of them are taking subscriptions from investors.
 
— Georgina Lee


US rate cut? So what, says analyst Castor Pang

Chinese brokerage CSC Financial (601066 CH) had a bad day in Shanghai.
It was one of the tops losers in percentage terms, falling 4.6 per cent to 20.29 yuan. It's Hong Kong-listed shares (6066 HK) held up, gaining 1.26 per cent to HK$5.63 in an advancing market.
CSC got tangled up in this week's scandal at Camsing International, which announced its chief executive and founder Lo Ching had been detained by Shanghai police.
Chinese media have been all over Camsing, claiming she was involved in dubious transactions and investments. The company has said it doesn't know why she is being held, and there was no clear way to reach the detained Lo for comment.
Chinese media have roped in CSF Financial by recollecting its financing of Lo’s backdoor listing in 2015 into a Hong Kong listed company Fittec, which was later renamed as Camsing International.
But CSF issued an exchange announcement Wednesday night to clarify its role, saying that relationship is all in the past.
It said its wholly owned unit had acted as the financial adviser for the acquirer in the backdoor listing deal and provided the acquiring entity, China Base Group, a loan financing amount to HK$700 million.
It said that China Base Group has in 2016 repaid all the outstanding balance of the loan.
“Currently China Base and CSC Financial’s wholly owned unit have no further outstanding business relationship,” it said.
— Georgina Lee


CSC Financial plummets in China, clarifies its past relationship with beseiged Camsing

Well, the morning sure looked encouraging.
But in the end, the Shanghai Composite Index closed barely up, eking out a 0.08 per cent gain, up a paltry 2 points to 2,918.
The CSI 300, which tracks blue chips listed on Shenzhen and Shanghai, ended 0.04 lower at 3,758.22.
The clear winner was gold, which rose to US$1,421.67 on Federal Reserve chairman Jerome Powell's hint an interest cut is coming. Lower borrowing rates make gold's appeal grow, as does uncertainty, which the world has plenty of right now. Linked stocks rose.
Shandong Gold Mining (600547 CH) was up 6.4 per cent to 41.4 yuan, while Zhongjin Gold rose 4.5 per cent to 9.69 yuan.
The leading loser on the Shanghai index was financials, with Bank of Beijng (601169 CH) falling 0.18 per cent to 5.58 yuan. 
CSF Financial (601066 CH) ended down 4.61 per cent, at 20.29 yuan, as doubts lingered over the brokerage’s role in financing embattled Camsing International, whose founder Lo Ching has been detailed by the Shanghai police amid reports on her involvement in a slew of investment scam and frauds.
Analysts said investors remain cautious about China’s economic outlook, after Wednesday China’s PPI inflation fell to zero per cent in June from a year ago, and 0.6 per cent in May, indicating weak domestic demand amid external uncertainties, a report from Bank of America Merrill Lynch said.

— Georgina Lee 


 Chinese markets lose steam on stubborn worries

For many people, there is nothing worse than a flat beer. Demand in Hong Kong for the biggest IPO of the year so far was anything but sparkling as Budweiser Brewing Company APAC’s shares proved they were not to everyone’s taste.
The retail offering, which ran from Monday until noon on Thursday, is probably about 3.7 to 5 times oversubscribed, locking in HK$18 billion (US$2.3 billion) to HK$23 billion of capital, according to the latest estimates of 10 stock brokers polled by the South China Morning Post. That is far lower than initial forecasts that the IPO would be 10 to 15 times oversubscribed.
Budweiser Brewing, the Asian unit of beer giant Anheuser-Busch InBev, aims to raise up to US$9.8 billion with its Hong Kong listing.
Read full story here by Enoch Yiu.


Budweiser’s mega IPO goes flat

The Hang Seng held onto some gains, but they narrowed at close to 0.8 per cent, level the benchmark at 28,431.8.
During early trading hours, gains in the blue chip index at one point reached 1 per cent, as properties got off a strong start in the morning following dovish comments from the Federal Reserve chairman Jerome Powell overnight. Powell said US economic uncertainties have increased in recent months. His comments were seen as a signal the Federal Reserve will cut rates at a meeting later this month.
At close, Insurer AIA (1299 HK) led the HSI higher in index point terms, up 1.3 per cent at HK$84.35. China Construction Bank (939 HK) was up  1.1 per cent at HK$6.21. Sun Hung Kai Properties (16 HK) closed up 2.2 per cent, at HK$134.6 and CK Asset (1113 HK) rose 1.3 per cent to HK$60.45.
Elsewhere, semi-trailer maker CIMC Vehicles (Group) (1839 HK) finished its debut on the Hong Kong main board at HK$6.14, below its initial offering price of HK$6.38, but improving from HK$5.9 minutes after the morning bell rang.
— Georgina Lee


Property gives a boost to Hang Seng 