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Yujing Liu

Deb Price

Welcome to a fresh week, traders.
Check out the day's action below. Have any feedback on how we can improve our live blog to make it your must-read every trading day? Please send your thoughts and questions to deb.price@scmp.com .
— Yujing Liu and Deb Price in Hong Kong
 


Stocks Blog: China, Hong Kong tumble as STAR technology board debutante soars 400 per cent

Li Qiang, left, Shanghai Communist Party boss, and Yi Huiman, chairman of the China Securities Regulatory Commission, bang the gong to open trading on the Star Market at the Shanghai Stock Exchange. 
Photo: Shanghai Stock Exchange

A Chinese investor uses a mobile phone to check a rare earths company's stock price at a securities brokerage house in Beijing in June. EPA-EFE

Today is a big day in Chinese markets. The new Star technology board begins trading. Photo: Daniel Ren

Investors need to buckle their seat belts for what is expected to be a very bumpy ride in Chinese earnings season

Business

Markets

GREE air conditioners are on sale in a Gome electrical appliances store in Beijing. Photo: Alamy

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)

STAR board trading seen draining liquidity in other markets
Prominent Moutai bull lowers target price 


STAR board trading seen draining liquidity in other markets


Live

Morning guidance
Here's what we are watching this morning:
US Friday markets/ What futures foretell
--The S&P 500 fell 0.62 per  cent, the Nasdaq dropped 0.74 per cent and the Dow Jones Industrial Average slipped 0.25 per cent.
-- Hong Kong futures are down 0.59 per cent to 28,649, while the China A50 futures are also down 0.2 per cent to 13,499.0 
IPO debuts: 25 new companies on the Star board
Economic statistics/Central Bank action: Nothing major scheduled
Corporate events: earnings, meetings, news conferences:
None to note.
 


Morning guidance 

China Yuhua Education (6169 HK), the second-largest Chinese private education firm listed in Hong Kong by market capitalisation, said it will acquire a 90 per cent stake in Shandong Yingcai University for 1.5 billion yuan (US$218 million).
Shandong Yingcai University is the largest private college in the eastern province of Shandong, according to a stock exchange filing released today.
Acquiring the school will enable Yuhua to “enhance its competitive edge against other private education providers in the north China region” and offer “a greater potential for profit and long-term business sustainability”, the company said in the filing.
— Yujing Liu


Private school operator Yuhua Education acquires Shandong college

Chinese biotechnology company CStone Pharmaceuticals (2616 HK) said it has received approval from China’s medicine regulator to initiate an early-stage trial for a leukemia drug, in a stock exchange filing today.
The company got a green light for what is called a phase-one bridging registrational study of its drug underdevelopment, named Ivosidenib, which could treat the relapsed or refractory acute myeloid leukemia (AML) with a IDH1 mutation, according to the filing.
The trial is designed to evaluate the efficacy, safety and pharmacokinetics of the drug, the company said.
“AML is the most common type of acute leukemia in adults and is characterized by rapid disease progression. There are approximately 20,000 new cases of AML in the United States each year, with a five-year survival rate of approximately 27 per cent, as compared to at least 30,000 new cases in China annually and a five-year survival rate of below 20 per cent,” CStone said in the filing.
— Yujing Liu


Biotech firm CStone Pharma gets approval for leukemia drug trial

The 25 stocks that went public on Shanghai’s new technology and innovation board, also known as the STAR board, soared in their debut trading.
Anji Microelectronics Technology (688019 CH), a semiconductor developer, was the top gainer and shot up by as much as 295 per cent to 154.88 yuan from its offering price of 39.19 yuan.
The weakest-performing among the 25 stocks is Guangzhou Fangbang Electronics (688020 CH), a maker of electromagnetic shielding film, which was trading at 42 per cent higher than its offering price of 53.88 yuan.
— Yujing Liu 


25 stocks soar after listing on new STAR board 

It may be a very bumpy earnings season in China.
The first of China’s more than 3,000 listed companies have started reporting results for the first half of the year. With the weakest economic growth on record reported this week in China, some blue chips have issued warnings of big drops in profits.
One of the most popular stocks with foreign traders – fabled Kweichow Moutai – tumbled 3.1 per cent this week after it posted its slowest quarterly sales growth in three quarters.
The fiery liquor maker isn’t likely to be crying into its baijiu alone.
The companies trading on the benchmark Shanghai Composite probably will announce a decline in earnings growth for the three-month period ended in June, according to Bloomberg data.
A rebound may be ahead in the third quarter. But investors will want to keep a close eye on their favourites and be prepared for some at least short-term pain, as some big names that are often on the top list of foreign buying through the trading stock connects between Hong Kong and the mainland are no exception to the slowdown.
Read full story here by Zhang Shidong.  


Investors watch out. Turbulence expected in Chinese earnings season

The holding company behind China Southern Airlines, mainland China’s largest carrier, will receive a cash injection of 30 billion yuan (US$4.36 billion) from three fund-management firms, the company said in a filing to the Hong Kong stock exchange. The money is intended to boost its war chest for overseas expansion.
In its filing, the airline said its parent, China Southern Air Holding (CSAH), had entered into a capital increase agreement with three investors “to implement the relevant requirements of the Central Committee of the Communist Party of China and the State Council on deepening the [equity diversification] reform of state-owned enterprises.”
Under the agreement, Shenzhen Penghang Equity Investment Fund Partnership, state-backed Guangdong Hengjian Investment Holding and Guangzhou City Construction Investment Group will each contribute 10 billion yuan to CSAH’s registered capital.
The move does not change CSAH’s status as one of the 96 state-owned enterprises supervised by the central government’s State-owned Assets Supervision and Administration Commission, and its role as the controlling shareholder of China Southern, the airline added. Details of the shareholding structure following the transaction were not disclosed.
The proceeds will be used primarily to boost China Southern’s core air transport business, and “in line with the Belt and Road Initiative and the Guangdong-Hong Kong-Macau Greater Bay Area strategy”.
China Southern Airlines trades in Hong Kong (1055 HK), where it was up 0.93 per cent to HK$5.45 in early trading, and Shanghai (600029 CH), where it rose 0.39 per cent to 7.63 yuan.
Read full story here by Eric Ng. 
 


China Southern Airlines rises on news of cash injection for overseas expansion 

The Shanghai Stock Exchange’s new Star Market got off to a suitably stellar start on Monday morning as all 25 debutants saw their shares jump.
The firms, spanning industries from microchips and biotechnology to artificial intelligence, were greeted by an immediate buying spree as trading opened at 9:30am.
Anji Microelectronics (Shanghai) got off to the best start as its shares opened 287 per cent higher than the initial public offering price.
The new Nasdaq-style board, which debuted on Monday, underscores a profound shift in China’s securities sector.
The Star Market was ordered into existence by Chinese President Xi Jinping in November last year. It is aimed at helping Beijing sustain economic growth by funding technological innovation rather than through massive infrastructure spending. China’s regulators have spent the past eight months preparing the ground for Monday’s launch.
The Star Market presents a new funding platform for Chinese start-ups amid the US-China trade war. Tensions between the world’s two largest economies spread to the technology sector in May, when US President Donald Trump signed an executive order banning the use of equipment made by China's Huawei Technologies, the world’s largest maker of 5G telecoms equipment.
Read full story here by Daniel Ren. 


Shanghai's new tech board gets off to a stellar start

One of the most famous Kweichow Moutai (600519 SH) bulls says he is seeing less room for the liquor maker’s stunning growth.
Xing Tingzhi, an analyst at CICC, lowered his target price for the maker of the fiery baijiu by 4 per cent to 1,200 yuan from 1,250 yuan yesterday.
Xing became famous by correctly calling the stunning bull run in Kweichow Moutai’s stock price, which surged by over 100 per cent over the past two years, and giving it a target price of 1,000 yuan in April, which the stock breached in June. 
In the latest report, Xing said Moutai is likely to see tight supply in the third quarter, which could lead to a lower revenue growth at around 15 per cent.
— Yujing Liu


Prominent Moutai bull lowers target price

For Lo Ka-shui, his tentative victory in a high-profile family feud over a HK$24 billion (US$3 billion) property inheritance has proved to be something of a mixed blessing.
Having seen off an attempt by his mother to win back control of Great Eagle Holdings, one of Hong Kong’s wealthiest property dynasties, he faces the daunting prospect of trying to keep the company’s international hotel empire growing.
The protracted trade war between the world’s two largest economies has dampened sentiment around the globe enough for Great Eagle to slow its international expansion plans.
“Our hotels businesses across the world have shown signs of softening this year, after continuous growth in the past few years,” said Lo, the company’s chairman, in an interview with South China Morning Post.
“The trade war does not only affect the US and China. The negative impact is taking a toll on the economies across the world. I am worried about a global [economic] correction.
“China is seeing its economy slowing. Government debt sold by countries like Germany are seeing negative yields, and Japan is also slowing down. Those are the signs.”
Great Eagle Holdings (41 HK) is trading up 0.15 per cent to HK$34.25.
Read full story here by Peggy Sito.


Great Eagle chairman tells of 'softening' signs for its hotel business amid trade war

Trading of semiconductor maker Anji Microelectronics Technology (688019 SH) was temporarily suspended from 10:20am for 10 minutes, after the stock soared by 404 per cent to 197.6 yuan from its offering price of 39.19 yuan.
Anji was among the first batch of 25 companies to go public on Shanghai’s new Nasdaq-style tech board known as the STAR Market.
Unlike other existing boards, where stocks can only move up or down 44 per cent in the first day of their trading, there is no limit to the maximum price movement for stocks listed on STAR board in the first five days of their listings.
But when stocks move by 30 per cent from their opening prices, trading will be suspended for 10 minutes to reduce volatility. Once they resume trading, if they rise by 60 per cent from their opening prices, they will be suspended again for 10 minutes. The maximum number of times a stock can be suspended in a day is four times. 
— Yujing Liu 


 STAR board stock hits temporary suspension as price skyrockets

Transaction volume of the 25 stocks listed on the news STAR board in Shanghai reached 32 billion yuan (US$4.7 billion) as of 10:55 am, as investors piled in to catch up with the stunning gains in their debut trading.
The turnover equals a third of the transaction in the over 1,500 stocks tracked by the Shanghai Composite Index, which stood at 119 billion yuan, according to data from the stock exchange.
The frenetic trading on the STAR board looks set to drain the liquidity in other markets. The Shanghai Composite Index declined 1.1 per cent to 2,892.8, while the ChiNext Index of start-ups was down 1.3 per cent.
— Yujing Liu 


STAR board trading seen draining liquidity in other markets

Unprecedented violence late last night at a Hong Kong railway station is not the reason the Hang Seng is trading down this morning, said Gordon Tsui, managing director of Hantec Pacific.
"I don't think it is a major factor. Hong Kong's market is affected by the global markets ... Only economic data will affect [it]," he said.
The Hang Seng fell about 0.9 per cent from Friday's close, minutes after markets opened, and is trading now down 0.68 per cent.
Last night, a rampaging mob of rod-wielding attackers dressed in white T-shirts assaulted black-clad demonstrators, passengers and journalists alike, sending 36 to the hospital.
"Sentiment is not very positive because overall, investors are still watching the [Fed's] interest rate cuts, and whether the [cutting of interest rates] will become a norm," Tsui said.
Until the US Federal Reserve confirms an interest rate cut later this month or updates on the US-China trade war standstill, Tsui expects the Hang Seng will continue to trade within a narrow range between 28,000 and 29,000.
Shanghai's STAR technology board began trading today with its 25 stocks soaring in their debut. However, the Shanghai Composite was down by 1.5 per cent in the opening minutes.
Some money is being taken out from the Shanghai stock exchange by investors to trade on the new tech board, Tsui said.
"But it will not last for long," he said, referring to the fall in the Shanghai Composite. "It will go back to normal soon."
"China is a huge market ... [the STAR board] provides an expansion of global funding for high tech companies," Tsui said.
"The major thing [affecting the Hong Kong and China markets] is how global market outlook will be, and the profit levels of enterprises in the coming quarter is a major basic element of consideration," he added.
Read story here about what investors need to know about China's earning season.
 
— Daryl Choo 


Violence against protesters isn't the cause of Hang Seng drop, says  Gordon Tsui of Hantec Pacific

The strong rally in global stocks in the first half of this year, driven by accommodative policy in the US and China, could be “too good to last”, UBS Asset Management said in a report today.
"With valuations for risk assets having rebounded, we have turned neutral from overweight global equities, given moderating economic growth and associated risks from the trade and technological conflict between the US and China,” Evan Brown, head of macro asset allocation strategy wrote in the report.
But investors should still be able to find growth opportunities in the China market, as the economy stays resilient and the weighting of A shares increases in global indices, according to UBS.
"For equity investors, China's stock markets will likely continue their growth path in 2019 and become some of the largest in the world. If, as we expect, onshore China markets are fully included into the MSCI EM benchmark, China equities will account for an estimated 40 per cent of that index alone," said Bin Shi, head of China equities.
-- Yujing Liu


UBS turns "neutral" on global equity, but encourages allocation to China stocks

Enthusiastic buying in the new technology board, or the STAR board, has sent stocks skyrocketing in their trading debut while weighing down the broader China market.
The 25 stocks went public today on STAR board rose by between 107 and 415 per cent by lunch break. Total transaction volume for the stocks stood at 38 billion yuan (US$5.5 billion).
China Railway Signal & Communication (688009 SH), which specializes in train control systems, recorded 7.6 billion yuan in transaction, making it the most traded stock in the China market.
The Shanghai Composite Index dropped 0.6 per cent to 2,907.44 at lunch break, after declining by as much as 1.5 per cent in the morning. The ChiNext Index of start-ups listed in Shenzhen fell 0.6 per cent, and the Shenzhen Component Index dipped 0.3 per cent.
-- Yujing Liu


STAR board shines while broader Chinese market dips

Private school operator China Yuhua Education (6169 HK) surged by 7 per cent to HK$3.53 as of 11:51am, after announcing a plan to acquire a private college for 1.5 billion yuan (US$218 million).
The company, which is the second-largest Chinese private education firm listed in Hong Kong, said it would acquire a 90 per cent stake in Shandong Yingcai University to increase its competitiveness in northern China.
-- Yujing Liu


​​​​​​​Yuhua Education jumps on Shandong college acquisition plan

Anji Microelectronics Technology (688019 SH), a manufacturer of semiconductor materials, is a rocket.
The debutante is extending gains in the afternoon as the top performer among STAR board debutantes.
Shares of Anji soared by 411 per cent to 200.38 yuan from its offering price of 39.19 yuan in the latest trading. Trading of the stock was temporarily suspended twice, for 10 minutes each time, when gains in the shares reached 30 per cent and 60 per cent from the opening price of 152 yuan, respectively. A total of 1.4 billion yuan (US$204 million) of Anji shares changed hands.
“I never imagined the investors would give so much attention and support to Anji. I feel a lot of responsibility as the stock price goes up, because it represents the trust of investors,” Wang Shumin, chairman of Anji told Chinese financial news outlet Yicai in a live broadcast.

 
— Yujing Liu


Top STAR board debutante continues soaring

Dozens of Shanghai Stock Exchange staff members burst into a patriotic song after the opening ceremony of the new STAR market.
The performers were passionate as they belted out “My Motherland and Me”, which was composed in 1984 and performed by famous Chinese singer Li Guyi, according to a video posted by newspaper Securities Times.
The staff, most of whom looked like they are in their 20s and 30s and were dressed in red clothes, waved Chinese flags in front of a giant LED screen that also displayed the national flag, turning the venue into a sea of red. Violinists performed in the back.
The performance could also be linked to the 70th anniversary of the founding of the nation, which will be on the October 1.
— Yujing Liu 


Shanghai exchange officials burst into patriotic song after STAR market ceremony

Casino stocks are having an unlucky day.
Sands China (1928 HK) fell 2.2 per cent to HK$40.20, as CICC downgraded it to neutral from outperform with a target price of HK$45 from H$50. Overall, among analysts tracked by Bloomberg, 21 rate it a buy, eight a hold and none a sell, with a target price of HK$45.06.
Wynn Macau (1128 HK) is also trading 2.2 per cent down, falling to HK$18.72.  CICC downgraded it to neutral from outperform, with a target price of HK$22, down from HK$24. 
CICC upgraded Melco International Development (200 HK) to outperform from neutral, boosting its target price to HK$27 from H$18. Melco is trading down 0.24 per cent, to HK$20.50.
Galaxy Entertainment (27 HK), which is trying to woo more mass market gamblers to compete with leader Sands China and be less dependent on VIPs, slid 2.7 per cent to HK$55.90.
SJM Holdings (880 HK) fell 2.5 per cent to HK$9.31, while MGM China Holdings (2282 HK) fell 3 per cent to HK$13.58.
Casino operators are positioning themselves for an all-out war for mass market "minnow" gamblers, versus the big whale VIPs, upgrading and building properties in the hot Cotai area of Macau. Analysts are overall bullish on Macau casinos. (Here's a recent feature for investors about what's going on in glitzy Macau.) 
— Deb Price
 


Casino stocks weigh on falling Heng Seng

The interest rate cuts by the central banks of Indonesia and South Korea last week signalled a more favourable environment for risk assets including liquidities in the region, according to American investment management firm Invesco.
“In the past, Asian central bankers routinely get criticized for being behind the curve by cutting interest rates too late. This time, we have already seen 5 central banks in Asia-Pacific taking a more preemptive approach,” David Chao, global market strategist for Asia Pacific at Invesco, wrote in a note today.
“Rate cuts will inject liquidity into the region, thereby stimulating economic activity, risk taking and stave off a recession.”
— Yujing Liu


Rate cuts in Asia good news for stock investors, Invesco says

The valuation level of STAR Market debutantes is getting too high with their extraordinary gains in the first day of trading, according Alan Li, portfolio manager at Atta Capital.
“The majority of the stocks are definitely overvalued,” he said. “The wider the gap between the stock price and the company’s earnings or growth, the bigger the risk of future losses is.”
The companies already enjoyed high valuations when they applied to go public under the STAR Market’s relaxed listing requirements. And listing on the STAR Market does not mean the companies are fundamentally superior to those currently traded on the ChiNext board of start-ups in Shenzhen.
“We have already seen this before — the ChiNext board once also traded at over 100 times earnings, before it declined for several years. Things have to return to the fundamentals in the end,” he said.
The most expensive among the 25 stocks that debuted today is semiconductor equipment maker Advanced Micro-Fabrication Equipment (688012 SH), which was valued at 247 times of its 2019 forecast earnings.
Shares of the company ended at 81.03 yuan, up 179 per cent from its initial offering price of 29.01 yuan.
— Yujing Liu


Atta Capital's Li cautions investors against high-flying STAR market debutantes

The opening of China’s new Nasdaq-styled technology board bodes well for investors betting on stocks trading on the main board, if history is any guide.
There has been anguish among traders that the Science and Technology Innovation Board, also known as the Star Market, would drain liquidity from existing equities. Indeed, the Shanghai Composite Index dropped as much as 1.5 per cent on Monday morning while the stocks trading on the new board enjoyed stunning gains.
The benchmark gauge has fallen 4.5 per cent over the past three weeks, as investors braced themselves for the debut of the 25 firms on the Star Market.
But historical data shows the benchmark tracking the main boards tends to recover quickly in such circumstances.
Almost a decade ago the Shanghai Composite Index delivered solid gains in the weeks immediately after the launch of the ChiNext, a board similar to the Star Market.
It rose 5.6 per cent in the week after the ChiNext market started trading in September 2009, and 6.7 per cent after a month. As with the Star Market, the gauge had fallen in the corresponding period before the ChiNext debut, when 28 companies started trading simultaneously in Shenzhen.
With the dust from the IPOs settling down, the sentiment on the main-board market is set to improve, according to Sinolink Securities.
Read full story by Zhang Shidong here.


Shanghai likely to bounce back after tech board launch, history suggests

Both Chinese and overseas investors of the Hong Kong market will start to lose confidence if violent conflict escalates amid prolonged social unrest in the city, according Atta Capital’s portfolio manager Alan Li.
At least 45 people were injured by a mob of men in white T-shirts Sunday night in the subway station of Yuen Long in northwest Hong Kong. The men attacked residents and journalists with rods and bamboo sticks, as some demonstrators returned from the third major march against a proposal that would allow extraditions to mainland China.
“If incidents like the one in Yuen Long continue and spread to other areas, the confidence of investors will truly be shaken. Both Chinese and overseas capital will be affected because people will start to really worry about public security in Hong Kong,” Li said.
Earlier marches and demonstrations did not have such effect because they mostly only impacted the local retail industry, while the business of most Hong Kong-listed companies is not within the city, he said.
— Yujing Liu 


Investors to lose confidence if violent conflict escalates in Hong Kong, according to Atta Capital's Alan Li

The turnover of the 25 debutantes of the new STAR technology board topped 48.5 billion yuan (US$7 billion) in the first day of trading, making up one ninth of the overall transaction in China’s A shares.
Anji Microelectronics Technology (688019 SH), a manufacturer of semiconductor materials, led the gains with a 400 per cent gain from its initial offering price.
Harbin Xinguang Optic-Electronics Technology (688011 SH), the worst-performing among the stocks, jumped 84 per cent from its offering price.
The active buying in STAR market weighed on the broader market. The Shanghai Composite Index slid 1.3 per cent to 2,886.97, while the Shenzhen Component Index was down 1.2 per cent.
The ChiNext Index of start-ups listed in Shenzhen declined 1.7 per cent.
The Hang Seng Index dropped 1.4 per cent to 28,371.26.
— Yujing Liu 
