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Deb Price

Georgina Lee

Good day, traders.
China and Hong Kong benchmarks saw their biggest falls in weeks. 
Catch up on the day's action below. Send questions or feedback to deb.price@scmp.com .
— Deb Price and Georgina Lee in Hong Kong 
 


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Shanghai Stock Index

Stocks Blog: Hong Kong, Shanghai stocks fall on concerns US Fed may not cut rates soon

Watch out, traders. Bears are out. Photo: Alamy 

When China’s father of EVs starts talking up hydrogen vehicles, analysts say investors should pay attention

A Toyota hydrogen fuel-cell concept car, the Toyota FCV PLUS, is displayed ahead of the Auto China auto show in Beijing on April 24, 2016. Photo: AP

Diagram of how Toyota's hyydrogen motor car works

Wan Gang, a vice chairman of China's national advisory body for policy making, speaks during a Bloomberg Television interview in Beijing, China, on Sunday, June 9, 2019. His vision to make China an electric-vehicle powerhouse revolutionized the global auto industry, cementing a move away from the combustion engine. Now, Wan says get ready for the next game-changing moment. The world's biggest car market is set to embrace hydrogen fuel-cell vehicles the way it did EVs. Photographer: Giulia Marchi/Bloomberg

Business

Markets


Arrest of another key executive batters stock of a second Chinese company
It's almost time for traders to start bottom fishing in Hong Kong, says Alan Li of Atta Capital



Shanghai Composite Index and Hang Seng post worst declines in weeks.
 


Live

Here's what we are watching this morning:

US markets/ What futures foretell
-- US markets on Friday: the S&P 500 slipped 0.18 per cent, the Nasdaq was down 0.1 per cent and the Dow Jones Industrial Average was off 0.16 per cent.
-- Hong Kong futures are down 0.3 per cent while the China A50 futures are down 0.5 per cent
IPO debuts: None to note

Economic statistics/Central Bank action: Nothing major
Corporate events: earnings, meetings, news conferences: None to note.
Good reads: Hydrogen power is a segment investors should start watching, Louise Moon reports, as the Chinese government encourages its development and more players pile in. Rare diseases are sparking big business opportunities for drug developers, reports Eric Ng. 
 


Morning guidance 

The Hang Seng is starting the week down 1.5 per cent, while the Shanghai Composite is down 0.8 per cent.
The US-China trade war continues to weigh on sentiment.
— Deb Price
 


Markets open lower

The latest scandal from the mainland, this time involving the billionaire chairman of Chinese developer Future Land Development Holdings (1030 HK), has once again brought into focus “key man risk”.
Investors are reeling from the shock arrest of Wang Zhenhua, one of China’s richest men and controlling stakeholder of Hong Kong-listed Future Land, for allegedly molesting a nine-year-old girl. It wiped out more than HK$33 billion (US$4.2 billion) from the company’s market cap since the arrest was confirmed by Shanghai police on July 3.
The development has sent also the company’s bonds plunging, and prompted Moody’s, S&P Global Ratings and Fitch to place it on negative credit watch on Friday to reflect the potential damage to its reputation.
Future Land is trading up this morning by 0.7 per cent to HK$6.76.  
Read full story by Zheng Yangpeng here.


'Key man risk' rife in Chinese companies, Future Land scandal shows 

The “father of China’s electric vehicle movement” and bigwig in political circles is gushing of late about the promise of another renewable – hydrogen-powered vehicles. As players get on board, analysts say it is a good time for investors to start thinking about this emerging sector.
The science behind the technology is easy to grasp: hydrogen gas stored in a vehicle is converted by fuel cells into electricity. The vehicle is powered with essentially no emissions, and it can travel far longer distances than electric vehicles can without needing to refuel, underscoring why the sector is getting so much buzz.
But cost – for the vehicles, the fuel and the network of refuelling stations – is among challenges to making what EV trumpeter Elon Musk once dismissed as “fool cells” commercially viable on a large scale.
“In China, there are a lot of companies putting resources in to focus on this industry,” said Toliver Ma, auto analyst at securities company Guotai Junan Securities in Hong Kong. “There are still technological obstacles to overcome to scale the usage. It will be a while.”
Learn about the promising sector in this story by Louise Moon.
 


Hydrogen vehicles rev up, drawing investor attention

China Tobacco International (6055 HK) is hot with traders again, jumping 11 per cent to HK$18.50.
At one point, the shares had shot up as much as 478 per cent after their debut last month, but traders then took profits. 
The company imports and exports tobacco-related products for China, which has the world's largest number of smokers. 
— Deb Price 
 


China Tobacco strikes up some early gains 

Rare earths — the key elements used in everything from iPhones to guided missiles — are seeing steep falls in early trading. 
China holds the lion's share of them, and President Xi Jinping drew attention to that fact in a visit to one plant in May, amid escalation of the US-China trade war. That's when speculators sense an opportunity and piled into the sector. 
It became a hedge in the trade war. But since things have cooled down between the world's two largest economies, speculators have fled with their profits.
Today, JL Mag Rare-Earth (300748 SZ), the company visited by Xi, fell 2 per cent to 52.71 yuan. 
China Minmetals Rare Earths (000831 CH) dropped 2.8 per cent to 14.54 yuan, China Northern Rare Earth Group High-Tech (600111 CH) fell 3.1 per cent to 11.82 yuan, and Xiamen Tungsten (600549 CH) fell 3.9 per cent to 13.43 yuan.
Meanwhile in Hong Kong, China Rare Earth (769 HK) plunged 5.2 per cent to HK$0.45. The stock became a plaything for speculators, shooting up more than 130 per cent at one point. 

— Deb Price 
 


Rare earths suffer steep falls

Investors should grab bottom fishing opportunities when Hang Seng drops to 28,000, Atta Capital’s Alan Li says. The benchmark is now at 28,246.65 points. 
Hong Kong stocks are cooling down but there’s still more room to fall, according to the  portfolio manager at the Hong Kong-based investment firm.
The Hang Seng Index is likely to continue dipping this week, after all the good news from the G20 summit was reflected in the 2,000-point gain in the Hang Seng Index last month, he said.
After that, more negative fundamentals began weighing on the benchmark, Li said.
First, investors are lowering their expectations for Federal Reserve rate cut in July because the US economy is holding steady, as indicated by strong jobs data released in the US trading day on Friday. In addition, more Chinese companies are likely to issue profit warnings ahead of the earnings season from July to August, just like what software company Kingdee International Software Group (0268 HK) did on Friday night.
“The business environment in China was poor in the first half of the year, and the economy is in a downward cycle. The effect of the trade war will also manifest gradually on the earnings,” Li said.
Li recommends investors to buy the dip of blue chip stocks whose performances don’t have a high correlation with China’s economy, such as Tencent Holdings (700 HK), AIA Group (1299 HK), Ping An Insurance (2318 HK), and Hong Kong Exchanges and Clearing (388 HK).
But the right timing will be when the Hang Seng dips to 28,000 points, he stressed.
— Yujing Liu 
 


Crystal Ball: It's almost time to start bottom fishing in Hong Kong, says Alan Li  

Tecon Biology (002100 CH) shares shot up to the 10 per cent daily up-limit, to 9.13 yuan , after the company said in an exchange filing over the weekend that its sales income in June doubled from a year ago to 90 million yuan, representing a 50.37 per cent increase from May.
For the first half this year, it has sold some 408,000 pigs, up 28.7 per cent from a year ago. The company attributed the improvement to higher selling prices, and also to its newly invested raising facilities starting to contribute to increase output. Sales income for the first half rose 30 per cent from a year ago to 400 yuan.
New Hope Liuhe (000876 CH) also said in an exchange filing that its June sales rose a strong 80 per cent from a year ago to 360 million yuan. Prices have picked up again in June to 15.5 yuan per kilogram.
Shares of New Hope Liuhue rose 1.1 per cent, at 18.83 yuan. Other pig-related stocks also rose, with  Shandong Felisi Food (002330 CH) up 5.6 per cent at 6.41 yuan, and Dymatic Chemicals  (002054 CH), which is also involved in the trading of farm produce and pasture products, up 5.14 per cent at 6.4 yuan.
— Georgina Lee 


 Swine-related stocks jump after Tecon Biology, New Hope Liuhue report June price and sales improvement

“The better US jobs report has dashed investors’ hope that the Fed will loosen its tap on liquidity soon and an immediate cut in interest rates seems unlikely now,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai.
“China’s markets are also suffering because the announcement of the starting trading date of the technology board has raised concerns that that will siphon off funds from existing equities.”
— Zhang Shidong


Shanghai falls as chance drops for Fed rate cut soon, tech board debut raises worries about impact on other Chinese equities 

Chinese entertainment company Camsing International Holding (2662 HK) plummeted by 88 per cent, after the company said its chairman, Lo Ching, has been arrested in Shanghai.
Lo, who owns 62.8 per cent of the Camsing, is currently being held in criminal custody by the Shanghai police, and the company is “unable to ascertain the reasons of, or incidents leading to, the criminal custody”, according to the stock exchange filing.
Business operations at the company remained stable and unaffected, it said.
Camsing International provides entertainment-related marketing services and licenses overseas cultural brands to sell products in China.
It’s the second company in a week to suffer a major blow from the arrest of a key executive, following Chinese property developer Future Land Development Holdings (1030 HK).
Thirteen per cent of Chinese companies have major shareholders who own more than 50 per cent stakes.
—  Yujing Liu


Arrest of another key executive batters stock of a second Chinese company 

Shenzhen-based software maker Kingdee (268 HK) plunged 12.9 per cent to HK$6.95, its lowest price since January 14, after it said after market close Friday that for the six months ended June this year it expects net profit to drop up 30 per cent to 40 per cent from a year-ago, to 101.9 million yuan to 118.8 million yuan.

Such a decrease came despite total revenue being expected to increase 15 per cent to 20 per cent from a year ago to 1.47 billion yuan to 1.53 billion yuan.
Kingdee attributed the decrease to the fact that “the Company accelerated in its execution of cloud transformation strategies and increased strategic input in the development of “ its cloud related businesses.

On March 18, the company was described by shareholder activist and analyst David Webb as a “bubble stock.” Webb argued that it has relied on sector-specific tax breaks, government grants, property investment gains and questionable transactions with related parties to generate “any profit at all”. Its share price plunged 14 per cent that day.
On the same day of the profit warning issued by Kingdee Friday, Webb said on his website that the chairman sold 60 million shares at $8.40  on June 20th, 10 days before the period end.

“Surely they should have had management accounts for the first 5 months of the year by the time he sold, if their software is any good. The SFC should investigate,” Webb said, referring to the city's securities watchdog.
-- Georgina Lee 


Kingdee plunges to lowest price in nearly six months after profit warning alert

The Shanghai Composite Index fell sharply, as upbeat jobs numbers out of the US took pressure off of the Federal Reserve to lower interest rates while concerns grow that a hot new tech board will hurt other Chinese share prices.
The Shanghai benchmark fell 2.5 per cent to 2,937 points. All sectors were down in early trading, led by communication services and information technology, which were both down by more than 3 per cent. 
Seazen Holdings — linked to billionaire Wang Zhenhua who was arrested last week for allegedly molesting a nine-year-old girl — was down by the daily limit of 10 per cent. It has fallen by the limit for the past three trading days since the news circulated last Wednesday after markets had closed on the mainland.
The Shanghai Index is on track to post its fifth straight trading days of losses. It remains up 17.5 per cent for the year, keeping its position as the world's best-performing major market.
The Shezhen Composite Index is down 2.7 per cent in early trading, led by communication services, utilities, information technology, industrials and materials, all of which were down by at least 3 per cent.
Meanwhile, the Hang Seng fell by 1.6 per cent in early trading.
 — Deb Price   
 


 Chinese stocks fall as concerns mount about US interest rates, impact of new tech board 

Shortseller Muddy Waters is accusing ANTA Sports (2020 HK) of fraudulent financials, claiming it relies on a network of distributors it controls but reports as independent to manipulate sales numbers.
A spokesperson at ANTA Sports said it would not respond to Muddy Waters' claims.
The stock was last down 7.4 per cent to HK$51.20, and was the top loser in the Hang Seng China Enterprise Index.
Muddy Waters accuses ANTA of "endemic fraud" in which it boosted its margins. 
“The secretly controlled distributors collectively appear to account for approximately 70% of ANTA brand sales” Muddy Waters charged.
“ANTA resolutely claims that its Tier 1 distributors are independent third parties.  This is a lie,”it added.
It claimed senior executives know that ANTA conceals its control of the distributors by using proxy owners, through which Muddy Waters claims it manipulates its reported financials.
Muddy Waters did not say how much it thinks the sportwear manufacturing should be trading at. 
— Georgina Lee 


Shortseller Muddy Water attacks ANTA Sports, sending share price down

China's foreign currency holdings rose in June for the second month to US$3.119 trillion from May's US$3.101 trillion, the highest level in more than a year, due to a weaker US dollar, according to data by the State Administration of Foreign Exchange (SAFE).
That's more than the median estimate of Bloomberg's survey of economists.
— Eugene Tang


China's foreign currency holdings rise in June for second straight month

Gold and precious metals were the worst performing sector in Hong Kong, with Tongguan Gold (340 HK) down 3.16  per cent at 46 HK cents; Munsun Capital (1194 HK) down 7.23 per cent at 7.7 HK cents, and SD Gold (1787 HK) down 3.1 per cent at HK$15.
Their falls mirror those in China, whereby a gauge tracking 32 gold-related and precious metal stocks fell. Guangdong Orient Zirconic Ind Sci & Tech  (002167 CH) fell to the 10 per cent daily limit to 7.57 yuan; Zhejiang Mining Jewelry (002574 CH) fell 6.78 per cent to 5.78 yuan; and Chenzhou City Jingui Silver Industry (002716 CH) fell 5.84 per cent at 7.25 yuan.
A stronger-than-expected US jobs report for June released Friday after market hours here prompted investors to scale back expectations that a 50 basis point cut to interest rates by the Fed is in store at its meeting at the end of July. That led gold’s spot price on Friday to drop by 1.2 per cent, to US$1399.26, the seventh day this year in which its price dropped by more than 1 per cent. Today, spot gold prices rose back to US$1,404.7.
-- Georgina Lee 


Gold-related stocks lose their shine on lower expectations of Fed rate cut 

Those great US jobs numbers are beating up Hong Kong property stocks today.
The properties sub-index was the worst-performing sector on the Hang Seng, last down 2.52 per cent.
The great jobs numbers that came out late Friday night translated into lower expectations by Hong Kong traders that the US Fed will lower rates when it meets at the end of the month.
“The first question recently emerged in the market is whether the US Fed would really cut the Fed funds rate by as much as 50 basis points (bp) in the upcoming July meeting end of this month. The second question is, even if the Fed did cut rate by, say, a smaller 25 bp point, would banks in Hong Kong follow suit?” said Linus Yip, chief strategist at First Shanghai Securities.
But Yip points out banks in Hong Kong — where the currency floats in a narrow band alongside the US dollar — don't always follow the US.
The US tightened rates nine times from the end of 2015 until March of this year, with the Hong Kong Monetary Authority responding in kind each time but banks only raising rates once in September 2018. 
Based on this, Yip said he doesn’t think banks in Hong Kong will mirror any imminent rate cut move from the US Fed, and would leave their lending rates unchanged.
But traders were expecting a US rate cut, seeing it as beneficial to stocks including those of property developers. Markets see lower rates as making investing in property cheaper.
Henderson Land (12 HK) was down 2.5 per cent at HK$42.9; Sun Hung Kai Properties (16 HK) was down 2.42 per cent at HK$133.3; Swire Pacific (19 HK) was down 3.44 per cent at HK$95.35; New World Development (17 HK) was down 2.69 per cent at HK$12.3.
— Georgina Lee 


Ouch! Property stocks take a beating off those great US jobs numbers  

The Shanghai Composite benchmark lost 2.6 per cent to 2933.36, led down by financial and industrial stocks.
Analysts said the decline was partly due to selling on the main board ahead of the slew of new share offerings on the coming Star Market. That's the highly anticipated Nasdaq-style technology board that debuts in Shanghai on July 22.
Reuters reported that some 21 of the 22 companies that are set to conduct their IPOs this week are Star Market debutantes.
“There are concerns that the slew of IPOs is tightening up liquidity, and this might cause some investors to switch out of their holdings on A-share on the main board,” said Linus Yip, chief strategist at First Shanghai Securities.
The good news, Yip said, is that this liquidity crunch caused by IPOs will likely ease off, helping to lift the pressure on China shares next week.
Leading the Shanghai index lower was China Shenhua Energy (601088 CH), down 3.4 per cent at 19.07 yuan; Ping An Insurnace (601318 CH) down 2.5 per cent at 88.59 yuan; and China Life Insurance (601628 CH) down 3.6 per cent at 28.3 yuan.
Meanwhile, Seazen Holdings (601155 CH), linked to billionaire Wang Zhenhua who was arrested last week for allegedly molesting a nine-year-old girl, hit its 10-per cent daily lower limit, at 31.12 yuan, making it the top loser on the CSI 300 Index, which tracks  blue chips listed on both Shanghai and Shenzhen bourse. The CSI 300 Index closed down 2.3 per cent at 3802.79; while the ChiNext index in Shenzhen ended down 2.7 per cent, at 1506.66.
— Georgina Lee 


Shanghai Composite suffers biggest fall in two months

The Hang Seng fell 1.5 per cent to 28331.69, in its fourth straight day of losses, with all but one blue chip ending lower.
At the close, losses narrowed slightly, as intraday the index had dropped by more than 500 points. It was the biggest fall since Jun 12, when it slid 1.73 per cent.
Leading the losses were index heavyweights, with Tencent (700 HK) down 2.4 per cent at HK$351 and AIA (1299 HK) down 2 per cent at HK$84.55.
Losses in the property sub-index were the heaviest. Swire Pacific (19 HK) was down 2.9 per cent at HK$95.85, Sun Hung Kai Properties (16 HK) fell 1.5 per cent at HK$134.5; and Country Garden (2007 HK) was down 3.2 per cent at HK$11.48.
Linus Yip, chief strategist at First Shanghai Securities, said properties were hurt by dampened expectations of a rate cut from the US Federal Reserve meeting slated for end of this month. Traditionally a rate cut is seen as beneficial to property market as lower rates make it cheaper to buy or invest in properties.
“The US has reported non-farm payroll has grown more than expected. Hence, the previous general expectation for a 50basis point cut from the Federal Reserve is currently being tuned down," said Yip, referring to Last Friday US Labour Department’s statistics on nonfarm payrolls, which rose 224,000 in June, well above market expectations of 165,000.
Elsewhere, in percentage terms, the top loser was Geely Auto (175 HK), which by 4.1 per cent to HK$12.16. The only stock bucking the downtrend was casino operator Sands China (1928 HK), up 0.4 per cent at HK$38.9.
Chinese entertainment company Camsing International Holding (2662 HK) plummeted by 80 per cent, after the company said its chairwoman and 62.8 per cent shareholder, Lo Ching, has been arrested in Shanghai. The company is “unable to ascertain the reasons of, or incidents leading to, the criminal custody”, according to the stock exchange filing.
— Georgina Lee 


Hang Seng has worst tumble in nearly a month

Stocks Blog: Hong Kong, Shanghai stocks fall on concerns US Fed may not cut rates soon

Arrest of another key executive batters stock of a second Chinese company It's almost time for traders to start bottom fishing in Hong Kong, says Alan Li of Atta Capital

Arrest of another key executive batters stock of a second Chinese company

It's almost time for traders to start bottom fishing in Hong Kong, says Alan Li of Atta Capital