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Yujing Liu

Deb Price

Good day traders --
Check out the day's action in mainland and Hong Kong markets below. We welcome your feedback and questions at deb.price@scmp.com .
See you tomorrow -- the final day of trading in May, which has been a tough month.
-- Yujng Liu and Deb Price in Hong Kong
 


Hong Kong stocks rise from 4-month low as China regulator vows to stabilise market

Shot in the arm for Hong Kong as key financial facilitator

UBS unfazed by wobbly start for China markets, says equities to be higher at end of 2025

China’s CATL poised to pick banks for US$5 billion Hong Kong share sale

Stocks

Stocks Blog: China, Hong Kong shares pounded by fears of US-China tech rivalry 

Photo: Shutterstock

Investors monitor stock price movements in Shanghai on May 6, 2019. Photo: Agence-France Presse


Photo: Alamy 

Business

Markets

Economy

ZTE to increase investment in chip making, 5G
Crystal Ball: 15 per cent decline in Asia stocks if trade talks break down, UBS says


China markets

Live

Morning guidance

Here's what we are watching this morning:
Overnight markets/ What futures foretell
-- Stocks fell in overnight US markets on prolonged trade tensions. The S&P 500 was down 0.7 per cent at a 12-week low. The Nasdaq Composite slipped 0.8 per cent, and the Dow Jones Industrial Average lost 0.9 per cent.
-- The Hang Seng Index Futures were little changed at 27,235 in Hong Kong the latest, while the China A50 futures dropped 0.6 per cent.
IPO debuts:
Drug research company Frontage Holdings (1521 HK) will trade for the first time in Hong Kong.
Economic statistics/Central Bank action:
None to note
Corporate events:
Yixin Group (2858 HK), China’s largest online car retailer, will announce its first-quarter earnings.
Good reads: The emerging Cold War between the US and China on technology is already cooling property deals in Shenzhen, which is home to Chinese tech giants including Huawei Technologies, ZTE Corp, and Tencent Holdings, Pearl Liu reports.


Morning guidance 

A warning about China’s energy self-reliance – coming at the sensitive time of escalating trade tensions – has sent energy stocks flying.
Fu Chengyu, the former chairman of state oil giant China Petroleum and Chemical Corp (Sinopec), told a conference in Shanghai yesterday that the country needs to be prepared for an oil supply cutoff in the short term.
Fu, a widely respected industry veteran and leader, said China also needs to become basically self-sufficient in energy over the next 10 to 15 years. This means setting it as a national strategy to meet at least 80 per cent of its energy demand with domestic supply, he said.
China National Offshore Oil (0883 HK), China’s dominant offshore oil and gas producer, jumped 2.6 per cent in early trading.
Sinopec (0386 HK) rose 1 per cent in Hong Kong, and PetroChina (0857 HK) climbed 1.6 per cent.
-- Yujing Liu 


State oil giants climb on self-reliance remarks

Pharmaceutical research company Frontage Holdings (1521) debuted on the Hong Kong exchange this morning, with a HK$1.6 billion (US$205 million) IPO.
The contract research organization offers drug development and discovery services for international biotechnology and pharmaceutical companies, and operates research facilities in the US and China.
Frontage Holdings is a subsidiary of Shenzhen-listed clinical trial services company Hangzhou Tigermed (300347:CH).
Three cornerstone investors agreed to claim around 40 percent of the offer shares, according to a company filing.
It is trading at flat, after a sharp rise and fall, HK$3.67. 
 
Trading has begun for pharma research company Frontage Holdings, a Hangzhou Tigermed subsidiary, which debuted a US$205 million IPO today at #HKEX pic.twitter.com/Zkz1yx665F
— Simone McCarthy (@simonelmc) May 30, 2019
-- Simone McCarthy
 


Frontage Holdings bangs the gong in Hong Kong

Innovent Biologics (1801 HK) is rated a new buy at Sinolink Securities, with a price target of HK$30, or 31 per cent up from its close.
The Chinese biopharmaceutical company focuses on developing treatments for cancer, as well as eye, heart and autoimmune diseases.
Of eight analysts tracked by Bloomberg covering the stock, all have it as a buy, with a consensus price target of HK$32.95.
The stock is for traders with a strong stomach. It is fond of extreme swings, falling 9.17 per cent on April 17, while jumping nearly 7 per cent on March 19 and 8 per cent on December 31.
It is trading down 0.9 percent at HK$22.750.

-- Deb Price 
 


Innovent Biologics rated new buy at Sinolink Securities 

Chinese food delivery service giant Meituan Dianping (3690 HK) was upgraded to hold from underperform at Daiwa, with a price target of HK$63.
On May 23, its reported quarterly earnings beat estimates. Tencent holds a 21 per cent in it. Its first quarter sales rose 70 per cent year-over-year. It also cut its operating losses.
It is trading up 0.2 to HK$61. 
-- Deb Price 
 


Meituan Dianping delivered an upgrade to hold by Daiwa

Fangda Special Steel Technology (600507 SH), a steel maker based in the southeastern province of Jiangxi, plunged 9.1 per cent in the latest trading, after an accident at its factory left one person dead and nine injured on Wednesday.
A gas pipe exploded at one of the blast furnaces at the company’ factory in the city of Nanchang Wednesday afternoon, according to a statement by the company. Fangda is still investigating into the cause of the accident, it said.
This is the third deadly accident at Fangda since December 2018, according to Chinese media reports.
-- Yujing Liu 


Steel maker's shares pounded by latest deadly accident

Hong Kong footwear maker Stella International Holdings (1836 HK) is a new buy at UOB Kay Hian, with a price target of HK$16.10.
It is trading down nearly  4 per cent, at HK$13.08.
It has a consensus price target among analysts tracked by Bloomberg of HK$14.14. Six rate it a buy, one a hold and none a sell.
-- Deb Price
 


Footwear maker Stella International wearing a new buy rating from UOB Kay Hian -- but hammered in early trading 

Tsingtao Brewery (600600 CH) shares were reinstated to outperform by SWS Research.
That follows UBS Global on Tuesday raising its target price for the Chinese beer maker's Hong Kong shares (00168) to HK$53.67 from HK$48.88, and maintained its buy rating.
That is considerably higher than the consensus of analysts tracked by Bloomberg, who see its target price at HK$46.81, or less than its close Wednesday at HK$48.65. Still, 17 analysts have it as a buy, seven a hold and three a sell.
In China, it was trading down 0.7 per cent at 48.32 yuan. In Hong Kong, it is down 1.4 percent, to HK$46.85.
-- Deb Price 
 


Tsingtao Brewery A shares say 'cheers' to outperform rating by SWS Research

A commentary piece published by the People’s Daily Wednesday  -- “The US shouldn’t underestimate China’s ability to retaliate” --  has sent a chill among observers of the latest trade war development.
The article says the US is highly dependent on China’s rare earths resource, and China could very well use it as a weapon to retaliate. In a much-noted move, it cited the ancient Chinese saying that roughly translates into “don’t say we didn’t warn you”, which is usually regarded as the gravest warning in China’s diplomatic language.
The newspaper has used the expression 29 times since its founding in 1946, according to China Digital Times, an independent news website. Some of the precedents happened during a border dispute with India as well as the Vietnam War.
-- Yujing Liu 


People's Daily warns US over 'China’s ability to retaliate' through rare earths 

Animal feed producer Beijing Dabeinong Technology Group (002385 SZ) is leading a surge in pork-related stocks in China, after offering concerned investors a reassuring clarification on its financials.
Beijing Dabeinong offered a detailed account of its financing situation in a response to an inquiry letter from the Shenzhen Stock Exchange last night. It clarified on questions such as why it had to take on 3.4 billion yuan of loans while it had 2.3 billion of cash deposits, and whether major shareholders misappropriated the funds.
Shares of the company surged as much as 9.1 per cent in early trading before narrowing the gains to 5.3 per cent the latest. A gauge of 27 pork-related stocks rose 0.6 per cent.
-- Yujing Liu 


Clarification on financials boosts animal feed producer, triggers advance in pork stocks

China’s semiconductor industry needs more than a decade to catch up with global peers due to a weaker industrial base, and the US-China trade war only adds extra pressure, a Chinese semiconductor expert told SCMP tech reporter Iris Deng.
“This is an extremely challenging and brutal industry, heavily reliant on long term industrial accumulation,” said Jay Huang Jie, founding partner of Jadestone Capital and former Intel Managing Director in China.
“China should be prepared for a marathon of at least a decade, which will also be loss-making [along the way],” said Huang, who left Intel in 2015 to establish his own investment firm focused on the semiconductor industry.
A possible exodus of high-end manufacturing from China, triggered by the US-China trade war, could put further pressure on the country as it tries to catch up. “It would be concerning if the high-end supply chain moves away from China after tariffs are raised. It won’t happen overnight, but there’s the possibility,” Huang said.
While China is on a par with global peers in chip design there is a 10-year gap in terms of the foundry business, meaning the manufacture of integrated circuits, Huang said.
Beijing’s call to to boost self-sufficiency in strategic technology, including chip making, comes as the US moves to cut Chinese firms off from American scientific know-how amid an intensifying trade war between the US and China.
Read full story here. 
 


Building China's own chip industry will be a costly, 10-year marathon, expert says

There are now 143 entries under mainland China in the US trade blacklist, based on a review of the existing 281-page document maintained by the Bureau of Industry and Security (BIS) under the US Department of Commerce, notes SCMP tech reporter Celia Chen.
While not well-known outside their industries, most of the Chinese entities found on the US trade blacklist are involved in fields such as electronics, aviation, semiconductors, engineering, and materials used for hi-tech components.
They include Beijing Automation Control Equipment Institute, Beijing Aeronautical Manufacturing Technology Research Institute, Beijing Power Machinery Institute, China Aerodynamics Research and Development Centre and China Electronic Technology Group Corp.
A number of major hi-tech components distributors are also on the Entity List. These include the likes of Tenco Technology Co, Avin Electronics Technology and Multi-Mart Electronics Technology.
Major Chinese academic institutions on the trade blacklist include the Beijing University of Aeronautics and Astronautics, Sun Yat-sen University, the National University of Defence Technology, Northwestern Polytechnical University, Sichuan University and the University of Electronic Science and Technology.
Read full story here. 
 


Huawei is one of more than 140 entities on US trade blacklist 

It’s time for investors to look for bargains, as US and Chinese stocks are set to become more volatile going forward, according to American asset manager Invesco.
“I can’t see a compelling reason why China would give any major concessions. So that means that the US will ultimately dictate how long this trade war lasts,” Kristina Hooper, chief global market strategist at Invesco, wrote in a note today.
The recent downturn in global stock markets provides “an opportunity to look for attractive bargains created by this sell-off – particularly in China and emerging markets in general – for investors with a longer-term time horizon,” she wrote.
Hooper believes the Federal Reserve is likely to help the economy by cutting rates, which will boost emerging markets, while China will continue to provide monetary and fiscal stimulus to the domestic economy, according to the note.
-- Yujing Liu 


Invesco sees more volatility -- and opportunities to find bargains

It's a rough day on the Hang Seng, where 38 stocks are trading down, only 11 up and one unchanged. 
The Hang Seng is being pushed down by the health care and information technology segments, where related stocks are down more than 3 per cent. Real estate stocks are also a drag, down as a whole 1.8 per cent. Only energy and communication services are trying to hold up the index.
Henderson Land Development (12 HK) is the biggest loser on the Hang Seng right now, falling 5.5 per cent. CSPC Pharmaceutical Group (1093 HK) has plunged 5 per cent. 
The top gainer is Bank of Communications (3328 HK), up about 2 per cent. China Construction Bank (939 HK) is up 1.5 per cent.
The Hang Seng is on track for its first monthly loss of 2019. In January, it charged ahead 8.1 per cent. 

-- Deb Price 


Hang Seng weighed down by health care, information technology stocks

Chip makers led the decline in China markets today, as investors took profits from the recent rally powered by optimism that Huawei Technologies’ troubles in the US will force China to become more self-sufficient on semiconductors.
Stocks that experienced rapid run-ups driven by heavy speculation are seeing pullbacks.
Jiangxi Sanchuan Water Meter (300066 SZ), a water meter producer that announced earlier this month a plan to develop semiconductor in partnership with a state-backed firm, plunged by the daily 10 per cent limit.
The stock surged as much as 53 per cent in May amid a frenzy among investors betting on chips. The company received an inquiry letter from the Shenzhen stock exchange last week to demand it to clarify whether it has misled the market to speculate on its shares.
Guangzhou Zhiguang Electric (002169 SZ) also tumbled by 10 per cent. The electrical control equipment maker soared by 45 per cent earlier this month, after announcing a chip manufacturing firm that the company invested in will start mass production in the second half of this year.
A gauge of 74 stocks related to domestic chip manufacturing fell 2.5 per cent.
-- Yujing Liu 


Chip madness comes to a halt as investors pocket profits

Chinese telecom equipment ZTE Corp (000063 SZ; 0763 HK), which was forced to suspend production for three months last year when the US placed it on a blacklist, will expand its investment in chip making and make sure at least 10 per cent of its revenue goes to research and development this year.
The company has gained a deep understanding of the importance of research and development to the company, chief executive Xu Ziyang said during the annual shareholders’ meeting today, according to a report by the official newspaper Securities Times.
A big focus will developing a core 5G network operation system and more advanced 5G chips, Xu said. ZTE will also strengthen its edge computing technology, which could facilitate more efficient storage of data in the 5G era.
In mainland China, ZTE is trading down 3 per cent to 28.28 yuan. In Hong Kong, it fell 6.2 per cent to HK$19.
-- Yujing Liu 


ZTE to increase investment in chip making, 5G

China markets closed slightly lower, paring some of the losses in early trading, as cautious sentiment dominated amid growing trade war fears.
The Shanghai Composite Index fell 0.3 per cent to 2905.81, having hovered around the 2,900 level for more than three weeks since the re-escalation of the US-China trade war.
The Shenzhen Component Index declined 0.7 per cent, and the ChiNext Index dropped 0.8 per cent. The CSI 300 Index of large companies was down 0.6 per cent.
The turnover volume in Shanghai and Shenzhen stood at 453 billion yuan (US$66 billion).
Technology shares including chip makers and operation system developers led the decline, as investors pocketed profits from a recent run-up. A gauge tracking 74 semiconductor-related stocks fell 1.9 per cent, with two stocks plunging by the daily limit of 10 per cent.
Energy-related stocks bucked the trend and rose, after the former executive of a state oil giant stressed China's need to become self-sufficient in energy supply. A subindex of 38 petroleum-related companies surged 4.3 per cent, with eight of them soaring by the 10 per cent limit, including XinJiang Beiken Energy Engineering (002828 SZ) and China Oil HBP Science (002554 SZ).
-- Yujing Liu 


Trade tensions continue weighing on China stocks

Chinese sports apparel maker Anta Sports (2020 HK) fell as much as 12 per cent, after the founder of activist short seller Blue Orca questioned the company’s accounting and corporate governance in a public speech today.
Soren Aandahl, a veteran short seller of Chinese companies listed in Hong Kong, said Anta may fall by as much as 34 per cent at the 2019 Sohn Hong Kong Investment Conference, Bloomberg reported.
A public relations officer representing Anta said the company did not have any comment.
Shares of Anta were down 5.5 per cent in the latest trading. The stock has climbed by 26 per cent since the beginning of this year.


Anta Sports falls after short seller says company overvalued by a third

Swiss banking and investment giant UBS Group AG has lowered its forecast for Asian companies’ earnings this year after the latest trade war escalation.
“With the latest tariff escalation, we estimate that Asian earnings will only grow 5 per cent in 2019, instead of our original estimate of 6.4 per cent,” wrote Mark Haefele, chief investment officer at UBS Global Wealth Management, in a report published today.
A complete breakdown of trade negotiations could lead to a 15 per cent decline in Asian stocks, while on the other hand an early deal will cause earnings growth to rebound to high-single to low-double digits, with stocks rising by around 25 per cent, according to the report.
UBS has downgraded MSCI Taiwan to neutral because of the headwinds from the US’s Huawei ban, while it upgraded MSCI Malaysia to overweight as investors are likely to seek shelter in defensive laggards.
“We still keep some pro-cyclical exposure given our base case for a trade deal by year-end – we remain overweight MSCI China and underweight MSCI HK,” Haefele wrote.
-- Yujing Liu 


Crystal Ball: 15 per cent decline in Asia stocks if trade talks break down, UBS says

The Hang Seng Index closed 0.4 per cent lower at 27,114.88, led by smartphone component makers, as worries intensified over the US-China rivalry on technology.
AAC Technologies Holdings (2018 HK), a major supplier to Apple, fell 1.3 per cent. Sunny Optical Technology (2382 HK) declined 2.8 per cent, and Q Technology dropped 1.6 per cent.
This afternoon, in a response to a question over whether China will retaliate against the US by imposing restrictions on Apple, a spokesman of China’s ministry of commerce said the government will protect the legal rights and interests of all foreign enterprises in China.
-- Yujing Liu 


Hang Seng ends down, as worries heat up about US-China tech rivalry 

Stocks Blog: China, Hong Kong shares pounded by fears of US-China tech rivalry

ZTE to increase investment in chip making, 5G Crystal Ball: 15 per cent decline in Asia stocks if trade talks break down, UBS says

ZTE to increase investment in chip making, 5G

Crystal Ball: 15 per cent decline in Asia stocks if trade talks break down, UBS says