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Zhang Shidong

Deb Price

Happy Friday, traders.
Shanghai traders bet key data on China's economy would be bad, sending the main benchmark down nearly 1 per cent. The data, released after market close, showed an ongoing slump (details below). Hong Kong's Hang Seng posted the third straight day of declines, with sentiment partly down over the controversial extradition proposal that has sparked big protests.
Catch up on the day's action below. Please shoot any questions you have to deb.price@scmp.com .
— Zhang Shidong in Shanghai and Deb Price in Hong Kong   

 


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Stocks

Stocks Blog: Shanghai falls before China data shows ongoing economic slump 

A woman stands at a brokerage firm in Shenyang, China April 11, 2019. Photo: CNA


Photo: Alamy 

Hong Kong top destination for Chinese IPOs, but new Shanghai tech board poses threat, Baker McKenzie says

Hong Kong has slipped behind the New York Stock Exchange and Nasdaq this year as the American bourses gained from several blockbuster IPOs. Photo: AFP

Business

Markets

Chinese drugmaker Hansoh Pharmaceutical Group jumps in Hong Kong debut
Extradition proposal continues to weigh on investor sentiment in Hong Kong 


China markets

Hong Kong Stock Exchange

Live

* Overnight markets/ What futures foretell
-- Overnight in US markets, S&P 500 and Dow Industrials both gained 0.4 per cent, Nasdaq added 0.6 per cent
-- Hong Kong futures were little changed, while the China A50 futures slid 0.5 per cent
* IPO debuts: Jiangsu Guomao Reducer (603915 CH) will start trading in Shanghai today and Hansoh Pharmaceutical Group (3692 HK) in Hong Kong.
* Economic statistics/Central Bank action: The National Bureau of Statistics will release May data on industrial output, retail sales and fixed-asset investment today.
* Corporate events: earnings, meetings, news conferences
-- Lujiazui Financial Forum, in which China’s central bank governor and regulators overseeing the stock market and the banking industry all delivered speeches yesterday, continues in Shanghai today.
Good reads: China looks at ending foreign ownership limits on financial firms and signals a bold effort to remove barriers in reform plan, reports Xie Yu. Hong Kong is the top destination for Chinese companies seeking to list their shares outside China so far this year, reports Chad Bray. But Shanghai’s new technology innovation board could threaten that. 
 
 
 


Morning guidance 

Hong Kong is the top destination for Chinese companies seeking to list their shares outside China so far this year, but could face a challenge for initial public offerings from Shanghai’s new technology innovation board, according to a new report by the law firm Baker McKenzie.
Chad Bray reports that 34 Chinese companies have raised or are expected to raise more than US$6.8 billion in IPOs in Hong Kong in the first six months of 2019, including new listings by the drug maker Hansoh Pharmaceutical Group (3692 HK), which debuts today, and vocational training company China East Education Holdings (667 HK), which went public on Wednesday.
“Hong Kong may begin to experience disruption as China’s [Sci-Tech] Innovation Board launches and encourages Chinese companies to list domestically in Shanghai,” the law firm said. “Indeed, there has already been some fallout from this as several companies have cancelled their [Hong Kong] applications to instead resubmit to list domestically through the innovation board.”
The Shanghai Stock Exchange’s new “STAR Market” board, which is being described as China’s Nasdaq-style market, formally opened on Thursday and trading is expected to begin within two months.
Read full story here. 
 


Hong Kong is top destination for Chinese companies to list outside of China

China is mulling an end to foreign ownership limits on financial firms and is signalling a bold effort to remove barriers, reports Xie Yu.
Top financial regulators highlighted capital market reform plans, including a key concession long-sought after by US trade negotiators that would remove the limit on foreign ownership of domestic financial institutions, as they gathered in Shanghai to discuss how to address internal and external challenges.
Yi Gang, governor of the People’s Bank of China, said the central bank would support a pilot programme based in Shanghai to remove the foreign ownership limit in firms providing securities and fund management services.
The effort was part of measures to help build the city into an international financial centre, he said.
Read full story here. 


China looks to end foreign ownership limits on financial firms

 
Hansoh Pharmaceutical Group banged the gong today @HKEXGroup pic.twitter.com/eaEAwnlVgs
— Joy Pamnani (@joypamnani) June 14, 2019
Hansoh Pharmaceutical Group (3692 HK) banged the gong this morning, joining the Hong Kong stock exchange in one of the city's biggest initial public offerings of 2019, raising roughly US$1 billion.
The excitement around the pharmaceutical industry comes as a result of growing health care costs in China. According to Hansoh, health-care spending in China has surged to 5.9 trillion yuan (US$853 billion) last year from 3.5 trillion yuan in 2014, and is projected to top 9.4 trillion yuan in 2023.
Hansoh Pharmaceutical Group is a leading pharmaceutical giant in China that is  established in fast-growing therapeutic areas in China. Their focus includes central nervous system diseases, oncology, diabetes, gastrointestinal diseases, anti-infectives and cardiovascular therapeutic areas.
In China's pharmaceutical sector, these six therapeutic areas account for 62 per cent of total sales revenue, and took on a growth rate of 9.7 per cent from 2013 to 2017, which is higher than the growth rate of China’s pharmaceutical industry as a whole.
The pharmaceutical company’s debut initial public offering totaled HK$7,640 million (US$ 977.62 million). The company sold 551 million new shares at HK$14.26 (US$1.82) a share — the top end of the range. According to reports, the offer shares were significantly oversubscribed.
It secured nine cornerstone investors for the deal. Top subscribers included Singporean sovereign wealth fund GIC Private Ltd., securing 38,532,000 shares, and Chinese private equity firm Boyu Capital, subscribing for 33,026,000 shares.
According to Hansoh, the listing’s proceeds will be used for drug development programs, expanding the R&D team, and for investments in technologies to further enhance R&D capabilities and enrich the company’s product pipeline. Hansoh aims to focus on the research and development of innovative and generic drugs with relatively less competition or high technical entry barrier, such as special dosage generic drugs.
Shares rose to HK$16.86 in early trading.
— Joy Pamnani 
 


Hansoh Pharmaceutical bangs the gong in big Hong Kong IPO

Traders are waiting for China’s May economic data due to be released later today, which will offer a clue on the resilience of the economy and how the government will respond with policy tools.
The Shanghai Composite Index rose 0.4 per cent to 2,920.80 in morning trading, heading for a 3.3 per cent gain this week. Hong Kong’s Hang Seng Index drifted 0.3 per cent lower to 27,221.48 as opposition to a controversial extradition bill continues to weigh on sentiment.
— Zhang Shidong


China’s stocks hold on to gains ahead of key data release

Bank of East Asia (23 HK) slid 8.7 per cent to HK$422.05 in early trading in Hong Kong after the lender said first-half profit probably decreased.
The bank would have an asset impairment loss between HK$2.5 billion (US$319.4 million) and HK$3 billion because of downgrade of four legacy loans linked to commercial properties in the mainland, it said in an exchange statement. It did not give the estimate of how much net income would drop from a year earlier.

 
— Zhang Shidong


Bank of East Asia tumbles on profit warning

China Shipbuilding Industry (601989 CH) jumped 6.3 per cent to 5.41 yuan in Shanghai after the shipbuilder said it plans to buy back the company’s shares.
It plans to spend as much as 600 million yuan (US$86.7 million) buying the stock for no higher than 7.82 yuan in the following six months pending shareholders’ approval, according to an exchange statement.
— Zhang Shidong


China Shipbuilding rallies most in two months on share buyback proposal

Jefferies analysts believe stimulus in China is back on the table due to the "flow-blown" trade and tech wars. 
"We believe the only way forward for China is to double down on rebalancing the economy towards domestic consumption. We believe autos, gaming, internet, consumer discretionary, telecoms and oil and gas will continue to be growth sectors."
The analysts noted that PBOC governor Yi Gang officially put stimulus back in play in a Bloomberg interview, in which he said China has "tremendous" room in the monetary and fiscal toolkit to make adjustments.
"With the trade war morphing into a tech war, hostile geopolitics have likely made stimulus a necessity," they write in a note out this morning. "We believe, however, that stimulus will be kept to a minimum, focusing on consumption and employment. China is now playing the long game, in our view, which could benefit from a strong Rmb as the trade surplus has largely disappeared."
Their other key points:
In long game, China will need to replace American demand as well as supply. Exports to the US account for about 4 per cent of China's GDP.
"Adjustments from the traditional economic toolkit will, we believe, be complementary to efforts to redistribute capital. We believe (bank reserve rate ratio) cuts will continue to focus on lending to (small to medium size enterprises), which are, in theory, more efficient and have greater employment impact."
— Deb Price 
 


Crystal Ball: Autos, internet to continue to be growth sectors in China, says Jefferies

Spring Airlines (601021 CH) gained 1.6 per cent to 44.79 yuan in Shanghai after China International Capital Corp. lifted the carrier’s earnings estimates and said shares have more room for upside.
The projection of earnings for this year was raised by 6.9 per cent to 2 billion yuan (US$288.9 million) and that for 2020 by 7.8 per cent to 2.45 billion yuan, CICC said in a report today.
Spring Airlines will be able to add more flights next year after a new airport in Beijing is put into use, it said. CICC has a price target of 53.50 yuan for the stocks.
— Zhang Shidong


Spring Airlines shares gain altitude after CICC says it will rise further 21 per cent

The Hang Seng Index starts afternoon trading down 0.6 per cent to 27,142.32, dragged down by all sectors except energy and health care. 

Chinese oil giants are doing well. PetroChina (857 HK) was up 1.9 per cent to HK$4.31, CNOOC (883 HK) rose 0.81 per cent to HK$12.42, and China Petroleum & Chemical (386 HK) was up 0.4 per cent to HK$5.08 in the morning session. 
Oil prices have rebounded from a five-month low after tanker attacks in the Middle East.
The US blamed Iran for attacks on two tankers near the Strait of Hormuz chokepoint – through which about a fifth of the world’s oil output travels – raising the prospect of a military confrontation and supply disruptions in the Middle East, Bloomberg reports. However, swelling American stockpiles and signs of slowing consumption across the globe are weighing on prices. (Read full story here.)

Trade tensions between the US and China have threatened demand and weighed on oil prices. 

Real estate was among losers on the Hang Seng, with Swire Pacific (19 HK) leading losses in the sector, down 2.4 per cent to HK$93.35.

-- Deb Price 


Properties down, oil players up on falling Hang Seng 

Hansoh Pharmaceutical Group (3692 HK), which debuted today in one of Hong Kong's biggest IPOs of the year, is up 30 per cent, trading HK$18.58, regaining its run after pulling back some earlier.
-- Deb Price 


Hansoh Pharmeutical shoots up in debut 

Chinese stocks are trading down in afternoon trading, with the Shanghai Composite Index falling 0.6 per cent after an intraday gain of as much as 0.5 per cent.
That was an inauspicious sign before the release of a set of key May economic data scheduled for 3pm.
Earlier data pointed to a gloomy picture of the growth outlook, with inflation accelerating to the fastest pace since February 2018 last month and credit growth trailing estimates.
Hong Kong’s Hang Seng Index was also down 0.6 per cent.

 
— Zhang Shidong 


China’s stocks decline bodes ill for coming May economic data

China’s industrial output and fixed-asset investment both trailed economists’ estimates in May, while retail sales surpassed.
Industrial product grew 5 per cent from a year earlier in May and investment increased 5.6 per cent in the first five months, the statistics bureaus said after the market close. That compared with the estimates of growth rates of 5.4 per cent and 6.1 per cent in Bloomberg surveys. Retail sales increased 8.6 per cent last month, beating the projection of an 8.1 per cent increase.
— Zhang Shidong 


China’s May industrial output and investment miss estimates

China’s stocks dropped by the most this week as concerns mounted that a recovery in economic growth will falter and supply of new shares will accelerate after a ceremonial launch of a new board to host technology companies.
The Shanghai Composite Index slid 1 per cent to 2,881.97 at the close today, trimming a weekly gain to 1.9 per cent.
“The market is suffering from a double whammy,” said Wang Chen, a partner with Xufunds Investment Management in Shanghai. “There seems to be no driver for economic growth and growth will still remain sluggish in the second and third quarters. On the other hand, the fear of increased supply of IPO shares is back.”
— Zhang Shidong


China’s stocks fall most this week on growth outlook and IPO supply concern

Hong Kong’s Hang Seng Index slid 0.7 per cent to 27,118.35 for a third straight day of losses.
Sources told the SCMP that the Hong Kong government is trying to defuse the crisis over an extradition proposal, with one possibility being a pause, though not a withdrawal. It would allow the transfer of fugitives to jurisdictions that Hong Kong does not have an extradition agreement with, including mainland China. A massive protest was held Sunday, followed by another big one Wednesday in the former British colony.
The controversy has weighed on trading sentiment.
AIA Group provided the biggest drag on the gauge, falling 1.7 per cent.
— Zhang Shidong


Hang Seng Index drops for third day as extradition controversy weights on sentiment

Goldman Sachs sees a lot more than barnyard scraps for investors in WH Group (0288).
The pork processor is retained as a buy by Goldman Sachs, with a 12-month price target of HK$10.30.
It fell 2 per cent on Friday, closing at HK$7.35. So that would be a run-up of 40 per cent.
The pig sector in China overall has been roiled by African swine fever, which has spread quickly in the mainland since its discovery last August. It is nearly always fatal to pigs, and is highly contagious to them but doesn't harm humans.
Goldman Sachs hosted WH Group during its Greater China Corporate Day events. Here are some highlights quoted directly from the report that prompted it to keep WH Group at a buy.
* US sequential recovery in 2Q: US hog production business likely to reach US$20 plus proﬁt per hog in 2Q19 from rising hog prices, and the company expects this trend to continue. Rising exports demand should also gradually lift pork prices/packer margins from 2H19. 
* Under the current China 62% tariff, US exports are not economical. However, the company believes China imports will increase from other regions and still support US prices as well. WHG is now planning for the application of US pork tariff exemptions from China authorities. 
 
* China packaged meat margin is under pressure from rising input costs, but company plans for more (average selling price) hikes and higher imports to help mitigate the impact in 2H19. FY19 (operating profit margin) potentially may fall in the 17%-18% range. 
Meanwhile, pork-breeding stocks have shot up. Here's a look at what analysts have to say about what's ahead for pork-linked stocks amid the disease outbreak. 
— Deb Price 


Goldman Sachs sees big run-up for WH Group

Stocks Blog: Shanghai falls before China data shows ongoing economic slump

Chinese drugmaker Hansoh Pharmaceutical Group jumps in Hong Kong debut Extradition proposal continues to weigh on investor sentiment in Hong Kong

Chinese drugmaker Hansoh Pharmaceutical Group jumps in Hong Kong debut

Extradition proposal continues to weigh on investor sentiment in Hong Kong