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Zhang Shidong

Azar Zaidi

US President Donald Trump’s threat to increase tariffs on Chinese imports continues to send shock waves across global financial markets, sinking stocks in the US and Europe overnight. US stocks dropped by the most since March and equities in Europe closed at their lowest in five weeks. We expect a bumpy day in Asian trading on Wednesday.
The key things on traders’ radars will be China’s April data on imports and exports and blue-chip liquor maker Kweichow Moutai, which received an inquiry letter from the Shanghai exchange for the set up of an affiliated sales unit.
Zhang Shidong in Shanghai, Azar Zaidi in Hong Kong.


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China stock market

Stock Blog: Trump tweets cost China stocks about US$1 trillion in market cap

Business

Markets

China’s markets have lost US$983.7 billion in capitalisation since late April
China's exports increased 3.1 per cent in April, falling short of analysts' estimates


Trump’s surprise tweets about raising tariffs on Chinese imports have added fuel to a sell-off in mainland China-traded equities.


Stocks

Hong Kong Stock Exchange

Live

* Overnight markets/what futures foretell:
– Overnight in US markets, S&P 500 dropped 1.7 per cent, Nasdaq fell 2 per cent and Dow Industrial retreated 1.8 per cent
– Hong Kong futures were 1.7 per cent lower, while the China A50 futures sank 1.9 per cent
* IPO debuts: Youyou Foods (603697 CH) to start trading in Shanghai and China Everbright Water (1857 HK) in Hong Kong
* Economic statistics/central bank action: China’s customs office due to release April data on foreign trade today
* Corporate events, earnings, meetings, news conferences: Nothing major
* Later this week: The statistics bureau is expected to release April inflation data on Thursday and the central bank may put out money supply figures as early as Friday.


Morning Guidance

China and Hong Kong stocks joined a global sell-off at the open on Wednesday, as Trump’s threat to increase tariffs on Chinese imports continues to roil financial markets globally. The Shanghai Composite Index dropped 1.6 per cent and the Hang Seng Index sank 1 per cent. Major markets in Asia also headed south, with Japan’s Nikkei 225 index falling 1.5 per cent for the biggest decline in the region. – Zhang Shidong


 Stocks in China, Hong Kong take cues from overnight turmoil

Sentiment has soured just as China plans to open a Nasdaq-style board, expected as soon as next month. 


Slump in stocks ‘will definitely impact progress of the new tech board’

Kweichow Moutai (600519 CH), the world’s most valuable liquor distiller, dropped 1.7 per cent to 874.89 yuan after receiving an inquiry from the Shanghai Stock Exchange. In a letter issued on Tuesday night, the bourse asked the company to explain why China Kweichow Moutai Winery Group, its parent, plans to set up a wholly-owned sales unit and whether huge amounts of affiliated dealings will occur. 
The move comes after some investors complained that some of Kweichow Moutai’s profits will be transferred to its parent company by allowing the new unit to sell the liquor brand. Investment bank China International Capital Corporation has, however, raised its price target for Kweichow Moutai by 25 per cent to 1,250 yuan, citing prospects of accelerated growth amid a consumption upgrade.
– Zhang Shidong
 



Kweichow Moutai falls after bourse inquire, CICC raises price target

The global 5G race has set off a powerful rally in Chinese telecoms stocks since the beginning of this year. Chinese companies could become world leaders in next-generation mobile networks, thanks to an accelerated roll-out of supportive policies and regulatory changes by Beijing, said Edison Lee, managing director and head of telecoms research at US investment bank Jefferies.
He added that China’s 5G push will benefit stocks ranging from Qualcomm (QCOM Nasdaq) to China Tower (0788 HK) and ZTE (0763 HK).
But geopolitics and technology remain two major risks, he said, adding that investors should pay attention to stock valuation levels as well.
Listen to our full interview with Lee below.
– Yujing Liu




China’s 5G push to boost telecoms but risks remain, Jefferies’s research chief says

China Everbright Water (1857 HK), a water treatment and sewage plant operator in Shenzhen, had a lacklustre Hong Kong trading debut, with the stock opening unchanged at HK$2.99 from its initial public offering price. The stock fell by as much as 6.4 per cent in recent trading to HK$2.80. 
YouYou Foods (603697 CH), which produces pickled meat and packed seafood in Chongqing, jumped by the 44 per cent first-day limit to 11.33 yuan in its Shanghai exchange debut, rising 3.46 yuan from its initial public offering price of 7.87 yuan.
– Eugene Tang


China Everbright Water sinks, YouYou Foods soars

Ping An Insurance Group (2318 HK) said it has increased its stake in its unit Ping An Healthcare and Technology (1833 HK), also known as Ping An Good Doctor, five days after the unit came under a possible short-seller attack. The insurer raised its stake in Ping An Good Doctor to 41.3 per cent, from 39.3 per cent, according to a statement. Ping An Good Doctor’s shares, which fell by as much as 7.3 per cent on April 30 following a report calling the company’s business model into question, rose by as much as 3.5 per cent on Wednesday to HK$40.30 in Hong Kong, clawing back most of the losses suffered during the attack.
Ping An Insurance’s shares fell by as much as 2.3 per cent in Hong Kong to HK$88.95, and by as much as 3.4 per cent in Shanghai (601318 CH) to 78.38 yuan.
– Eugene Tang


Ping An Insurance raises stake in Ping An Good Doctor

Trump’s surprise tweets about raising tariffs on Chinese imports have added fuel to a sell-off in mainland China-traded equities. As of Tuesday, China’s markets had already seen US$983.7 billion wiped off in capitalisation since an April high, according to Bloomberg. Even so, China is still the world’s second-largest stock market, with a capitalisation of US$6.65 trillion.
– Zhang Shidong
 



Trump tweets cost China stocks about US$1 trillion in market cap

China’s overseas shipments in April increased 3.1 per cent from a year earlier in yuan terms, the customs office said on Wednesday, falling short of a projection of 8 per cent growth in a Bloomberg poll. Imports rose 10.3 per cent, beating a forecast of 3 per cent growth. Its trade surplus stood at 93.6 billion yuan (US$13.8 billion) in April. In US dollar terms, exports fell 2.7 per cent and imports grew 4 per cent.
China’s April trade surplus also shrank unexpectedly, to US$13.84 billion from a March surplus of US$32.6 billion.
Analysts had expected April exports to increase by 3 per cent while imports to slip by 2.1 per cent.
– Zhang Shidong and Eugene Tang



China April exports growth trails analysts’ estimates

Jamie Dimon, the chief executive of JPMorgan Chase, put the odds of the US and China reaching a trade deal at 80 per cent, in an interview with Bloomberg Television. It remains probable that there will eventually be an agreement, but global growth will be hit if the talks go “really south”, he said. “Now we have this whole kind of little bump in the road,” Dimon said.
“Sometimes his tweets don’t pan out to be as bad. I don’t think they’ll get the deal done by Friday.”
– Eugene Tang


Odds of US-China trade deal at 80 per cent, says JPMorgan’s Dimon

China’s central bank is pumping liquidity into the country’s banking system, driving down funding costs amid an escalating trade war with the US. The overnight repurchase rate, a gauge of funding available among commercial lenders, dropped to 1.1384 per cent on Wednesday morning and is set for its lowest level since June 2015.
The drop in capital costs comes after the People’s Bank of China said on Wednesday it had injected 10 billion yuan (US$1.48 billion) into the financial system through reverse repurchase agreements. Two days earlier, the central bank had lowered the reserve requirement ratio for some smaller banks. 
Investors on Wednesday cheered the loosening of purse strings, with the Shanghai Composite Index trimming an intraday loss of as much as 2 per cent to finish only 0.1 per cent lower at the break.
– Zhang Shidong
 



China overnight repo rate at four-year low, stocks pare losses

Hong Kong Exchanges and Clearing (0388 HK), the operator of Asia’s third-largest stock market, posted a 2 per cent year-on-year increase in first-quarter profit to HK$2.6 billion, higher than a market consensus estimate of HK$2.4 billion polled by Bloomberg.
Shares of the bourse operator fell 0.3 per cent to HK$264.4 by the noon close before the announcement.
“HKEX had a good start to 2019 despite a more challenging macro environment driving year-on-year softness in cash market volumes,” Charles Li Xiaojia, its chief executive, said in a statement.
Read a full report here.
– Yujing Liu


HKEX reports 2 per cent first-quarter profit rise, beats forecast

Lunchtime read: While overall financial risks are “manageable” for now, Hong Kong’s financial secretary, Paul Chan Mo-po, says the city is vigilant about any capital flight arising from negotiations around the US-China trade war, interest rate changes and changes in Hong Kong’s economic health.


Hong Kong keeping a wary eye on financial security, Paul Chan says

Chinese stocks will probably be trading sideways before a final outcome in US-China trade talks this week, said Ken Chen Hao, a strategist at KGI Securities in Shanghai.
“There won’t be a clear direction before the trade talks this week, and investors are waiting for the result,” Chen said. “For now, the central bank’s liquidity net injection is symbolic and won’t be done in a massive way, given the talks are still going on and haven’t fallen apart completely. It simply wants to send a message that it will take action once the downside pressure on the economy is increasing.
“If the negotiation really falls apart, it will have a pretty negative impact on China’s economy in the long turn and will bring an end to the rally in stocks,” he added.
– Zhang Shidong


China stocks to consolidate before trade talks, KGI says

“A relatively high base from April 2018 when exports rose 11.9 per cent can partly explain the lacklustre export reading today,” Chen Jingyang, economist at HSBC, said in an emailed note. “But broad-based contraction in shipments to both G3 and non-G3 countries show that a soft global growth environment continued to weigh on China export growth. Ongoing trade tensions between the US and China have weakened trade as well, as China exports to the US contracted by 13.1 per cent and imports from the US contracted by 25.7 per cent in April.
“As trade tension has re-emerged, further tariff actions could add more pressure to trade and GDP growth,” she said. “Should a trade war come back, we expect Beijing to step up easing and double down on support for the private sector.”
– Eugene Tang


Soft global growth environment weighs on China exports, HSBC says

Chinese social media and gaming giant Tencent Holdings gained 1.8 per cent to HK$387.80 in Hong Kong trading on Wednesday afternoon, after it announced a public test of its own Game for Peace, a smartphone game similar to PlayerUnknown’s Battlegrounds.
– Zhang Shidong


Tencent climbs on new game test

An intraday rebound in the benchmark Shanghai Composite Index proved to be short lived, with the gauge falling 1.2 per cent to 2,892.32 in Wednesday afternoon trading. 
A fund injection by China’s central bank through reverse repurchase agreements seems to have failed to soothe investors, while data showing China’s exports significantly trailed analysts’ estimates in April has led to renewed concern about the strength of its economy, particularly at a time when the Trump Administration is threatening to ratchet up its trade war with Beijing.
In Hong Kong, the Hang Seng Index also dropped 1.2 per cent.
– Zhang Shidong


 Stocks decline as afternoon selling widens

Swiss private bank and asset manager Pictet said it did not see “any material cause for concern about Chinese stocks at this stage” despite the sharp drop on Monday.
“[Monday’s] strong market reaction should be seen as a healthy antidote to the increasing complacency that has prevailed since the beginning of the year,” Chen Dong, senior Asia economist at Pictet, said in am emailed note.
“It is a welcome reminder that political issues seldom follow a linear path. More market-moving surprises, twists and tweets should be expected on trade tensions,” he said.
Chinese equities will continue to benefit from a number of positive drivers for the rest of this year, including Trump’s eagerness to strike a deal reflected in his tweets, China’s stabilising economic growth and the scheduled inclusion of A shares in global indices, Chen said.
– Yujing Liu
 


Declines in Chinese shares ‘healthy antidote’ to market complacency, Pictet says

The Shanghai Composite Index dropped 1.1 per cent to 2,893.76 at the close on Wednesday, finishing at its lowest level since February 22. The Shenzhen Composite Index dropped 0.7 per cent. 
The sell-off follows an overnight rout in global markets amid trade war jitters, and latest data that shows China’s export growth fell short of estimates by a large margin. Agricultural and insurance companies paced the decline for the day.
– Zhang Shidong


Chinese stocks fall to 10-week low 

Shares of Kweichow Moutai (600519 CH), the world’s most valuable distiller, fell for a third day to a 20-day low of 884.40 yuan. The distiller fell after being queried by the Shanghai Stock Exchange about a plan by its state-owned parent to establish a sales channel to distribute baijiu, or rice liquor, directly to consumers.
Read a full report here.
– Eugene Tang


Kweichow Moutai falls for third session to 20-day low 

Chinese investors, finding the US business environment uninviting, are turning to venture capital to skirt heightened scrutiny, while some have pivoted to other parts of the world altogether. Chinese foreign direct investment into the US plummeted for the second straight year in 2018, tumbling 83 per cent to US$5 billion, according to a Wednesday report by the National Committee on US China Relations, writes US correspondent Jodi Xu Klein.


US crackdown on Chinese investment sparks shift to venture capital

The Hang Seng Index fell 1.2 per cent, or 359.82 points, to 29,003.20, its lowest close since May 28. The Hang Seng China Enterprises Index, or the H-share gauge, lost 1.5 per cent.
Bank of Communications and China Life Insurance were among Wednesday’s biggest decliners, falling at least 3.1 per cent. China Everbright Water, a water treatment and sewage plant operator in Shenzhen, tumbled 11 per cent on the first day of trading in the city.
– Zhang Shidong


Stock Blog: Trump tweets cost China stocks about US$1 trillion in market cap

China’s markets have lost US$983.7 billion in capitalisation since late April China's exports increased 3.1 per cent in April, falling short of analysts' estimates

China’s markets have lost US$983.7 billion in capitalisation since late April

China's exports increased 3.1 per cent in April, falling short of analysts' estimates