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Georgina Lee

Deb Price

Good day, traders, and TGIF —
What a day. Markets reacted strongly to US president Donald Trump's trade war escalation.
Catch up on the day's big moves, as well as what stocks pro Alex Wong expects to happen next week.
And if you have any feedback, we'd love to hear from you at deb.price@scmp.com . And please consider sharing us with your friends on social media sites. 
— Georgina Lee and Deb Price


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Stocks

Stocks Blog: Hong Kong, China shares hammered after Trump escalates trade war

Traders had their hands full today, with mainland and Hong Kong markets posting big losses. Photo: Shutterstock

Business

Markets

Wait to buy, then look at battered consumer, infrastructure stocks in China, says strategist Kenny Wen
Crystal Ball: Some property stocks are oversold, and will rebound next week, says trading pro Alex Wong


Crystal Ball: Some property stocks are oversold, and will rebound next week, predicts trading pro Alex Wong


China markets

Hong Kong Stock Exchange

Live

Han’s Laser Technology Industry Group, one of foreign investors’ favourite stocks, issued a rare statement last night, saying its chairman apologized for making inappropriate comments when answering media inquiries.
In a phone interview, Gao Yunfeng blamed a reporter from state-run China Central Television for making a fuss about the company’s investment in its research and development centre in Europe. The research centre, which is located in Switzerland, has recently been in the lime light over its investment amount far exceeding budgets and its construction work being far behind schedule.
Han’s Laser defended that by saying in a separate statement that the delay and the increased budget was due to repeated changes of design plans that needed consent from local residents, and some unforeseeable difficulty in construction, such as the treatment of underground water. The centre is expected to be completed by the end of 2020, the statement said.
— Zhang Shidong 


Han’s Laser chairman apologizes for inappropriate remark against media 

Ajisen (China) Holdings (538 HK), which runs chain noodle restaurants, may have posted a significant drop in first-half net income because of the change of accounting rules on expenditure and increased marketing costs, according to an exchange filling to the city’s exchange. 
 
— Zhang Shidong 
 


 Chain noodle restaurant operator Ajisen’s profit probably drops significantly

Dalian Zeus Entertainment (002354 CH) said China’s securities regulator started an investigation into the gaming company for breaching rules on information disclosure, according to a statement to the stock exchange. The company also received a warning from the Dalian branch of the securities regulator for fund seizure, and untrue and untimely disclosure, according to a separate statement.
— Zhang Shidong


Gaming company Dalian Zeus probed by regulator

Shares of Chuying Agro-Pastoral Group (002477 CH) will be halted from trading starting today after staying below the par value for 20 consecutive days, a situation that has triggered possible delisting, the company said in an exchange statement. The Shenzhen Stock Exchange will make a decision on whether to strip the company of the listing status within 15 days, the statement said.
Chuying’s stock fell 5.5 per cent to 0.69 yuan yesterday.
—Zhang Shidong


  Pig-farming firm Chuying to be suspended pending delisting decision 

Muyuan Foods (002714 CH) received the nod from the Chinese Securities regulator yesterday to sell as many as 417 million shares in a private placement, the pig-farming company said in an exchange filing.
 
The approval will be valid for six months, it said.
 
— Zhang Shidong


 Pig breeder Muyuan approved to float new stocks

 Midea Group (000333 CH) bought back 60.3 million shares of the company for 3.1 billion yuan (US$449 million) as of July 31, the maker of household appliances from fridges to air-conditioners said in a filing to the Shenzhen exchange. 
 
Midea approved the plan to buy back between 60 million shares and 120 million shares for no higher at 55 yuan apiece at a shareholder meeting in February. 
 
— Zhang Shidong
 
 


China’s biggest appliance maker Midea buys back US$449 million shares 

Ping An Insurance Group (601318 CH) spent 5 billion yuan (US$725 million) buying 57.6 million yuan-traded shares of the company as of July 31, according to an exchange statement.
The share purchase, which was approved at a shareholder meeting in April, will be used for an employees’ stock incentive plan, and Ping An plans to spend between 5 billion yuan and 10 billion yuan for the buyback, it said. 
— Zhang Shidong


  Ping An buys back US$725 million worth of mainland-traded shares 

Here's what we are watching this morning:
US overnight markets/ What futures foretell
--The S&P 500 fell 0.9 per  cent, the Nasdaq dropped 0.79 per cent and the Dow Jones Industrial Average dropped 1.05 per cent.
-- Hong Kong futures are down 2.9  per cent, while the China A50 futures are down 2.7 per cent 
IPO debuts: Bank of Suzhou (002966 CH) 
Economic statistics/Central Bank action: Nothing major scheduled
Corporate events: earnings, meetings, news conferences: Nothing major
 


Morning guidance 

...buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die! Trade talks are continuing, and...
— Donald J. Trump (@realDonaldTrump) August 1, 2019


Trump tweets that he will slap on new tariffs on Chinese goods 

Victor Li Tzar-kuoi’s CK Asset Holdings (1113 HK) announced 16.4 per cent increase in core profit for the first half of the year, driven by strong property sales in Hong Kong before the housing market turned sour.
Underlying profit, excluding investment property revaluation and property disposal, amounted to HK$14.05 billion,  for the six months to June, up from  HK$12.07 billion in 2017.
CK Asset  said revenue rose 41 per cent to HK$34 billion for the period.
Net profit dropped 38.8 per cent  to HK$15.1 billion due to an absence of investment properties. In 2018, it recorded an asset disposal gain of HK$11.75 billion, largely from the sale of The Center in Central for HK$40.2 billion.
An interim dividend of 52 HK cents per share was declared, 10.6 per cent higher than the 47 HK cents given last year.
Read full story here. 
— Sandy Li 


CK Asset announces 16.4 per cent increase in core profit for 1H 

The latest 10 per cent tariff that the US imposed on US$300 billion China imports could hurt US consumers by putting inflationary pressure on consumer products and erode corporate profit margins, JPMorgan Asset Management Asia Pacific strategist Tai Hui said. 
They come as second quarter earning results are already showing that companies’ profit margins are narrowing.
“The fear of recession will rise once again. This could change the Fed’s policy outlook, requiring more aggressive rate cuts than Chairman (Jerome) Powell indicated this week to support the U.S. economy," he wrote. 
He suggests Asian investors pay more attention to volatility management in their asset allocation, with greater emphasis on income generating assets, such as high dividend equities, emerging market fixed income and corporate credit.
— Georgina Lee 


Asian investors should look at income-generating assets after Trump tariff move, says JPMorgan Asset's Tai Hui 

The Hang Seng plunged 2.2 per cent minutes after market opened, at 26,950.53, with property stocks extending previous sessions’ losses as the worst performing sector in the index.
Overnight, US President Donald Trump said the US would levy a 10 per cent tariff on US$300 billion of additional Chinese goods starting September 1, adding that the tariff could be raised in stages and go beyond 25 per cent.
If executed, the latest round would cover essentially all of China’s exports to the US. The two sides are supposed to engage in trade negotiations in early September. The escalation of tension pushed the US 10-year treasuries yield to 1.9 per cent, the lowest since 2016, and the S&P down 0.9 per cent. Brent crude fell the most in over three years, at US$60.5 a barrel after falling 7.2 per cent.
Sun Hung Kai Properties (16 HK), fell 4.1 per cent at HK$116.7; CK Asset (1113 HK) dropped 3.8 per cent at HK$55; and Swire Pacific (19 HK) was down 2.9 per cent at HK$85.
CNOOC (883 HK) dropped 4.1 per cent at HK$12.3 and PetroChina (857 HK) was down 1.7 per cent at HK4.1
The CSI 300 Index, which tracks blue chips trading on Shanghai and Shenzhen, was down almost 2 per cent, at 3729.13.
The Shanghai Composite Index lost 1.6 per cent and stood at 2,861.33.
Ping An Insurance (601318 CH) was down 1.9 per cent at 85.87 yuan, Kweichow Moutai (600519 CH) was down 1.2 per cent at 947.84 yuan, and Citic Securities (600030 CH) was down 3.5 per cent at 21.78 yuan.
— Georgina Lee 


Markets tumble on Trump tariff move 

"We think aggressive investors may enter the market for selective sectors, like consumer or infrastructure. We prefer A shares over Hong Kong," says Kenny Wen, wealth management strategist at Everbright Sun Hung Kai. 
He says President Donald Trump's threat of a 10% tariff on new goods may hit China GDP growth by about 0.2-0.4 per cent. 
For Shanghai Composite Index, a good entry point for investors will be around 2700 points, he says.
Shanghai is trading at 2,869 and is down 1.36 per cent this morning.
Wen worries the sell-off is not finished, but isn't seeing panic selling.
"Seems like institutional investors are reducing their exposure. I regard it as smart selling." 
— Deb Price 


Wait to buy, then look at battered consumer, infrastructure stocks in China, says strategist Kenny Wen 

There could be more downside in store for the Hang Seng, after the 2.2 per cent plunge in the blue chip index, to 26,956.75 at 10 am. 
Linus Yip, chief strategist at First Shanghai Securities, said the fact that many defensive stocks, such as Link REIT (823 HK) and Fortune REIT (778 HK), have been falling since the first week of July underscores that selling pressure in Hong Kong stocks has been strong over the past few weeks.
With the latest escalation in US tariffs on another US$300 billion in China goods, the news will unleash more selling pressure today.
“The Hang Seng Index could further slide to 26,000 before it stablizes, and I would not be surprised that the main board turnover Friday will exceed the HK$80 billion reached on Thursday,” said Yip.
Link REIT (823 HK) is poised to enter its tenth day of decline, and is down 1.3 per cent at HK$89.3.
Fortune REIT (778 HK) is down 1 per cent at HK$10.1. 
The decline in REITs, or real estate investment trusts, comes amid a worsening outlook for the city’s property market, as two months of protests in the city have hurt property transactions and weighed on landlords' rental income.

 
— Georgina Lee


Hang Seng has plenty of fall left in it, warns strategist Linus Yip

Hong Kong CEOs enjoyed a 117.7% rise in total compensation from 2014 to 2018, while shares of their companies rose a mere 28% in the same time period, according to Comptify Analytics, a Hong Kong-based HR data firm. 
The rise occurred among a group of 142 Hong Kong listed companies with market capitalisation of HK$25 billion or higher. 
CEO pay among these companies far outstripped CFO remuneration, which grew 66.7% over the same period, while executive directors' pay grew 24.3%.
Read full story here.
— Ryan Swift


Hong Kong big CEOs get compensation way higher than performance of their stocks, study says

All the 25 stocks listed on the two-week old Star Market tech board in Shanghai are trading up.
Raytron Tech (688002 CH) is close to the 20 per cent daily up-limit at 69.1 yuan, and is the fourth-most traded stock in the entire Shanghai market.
There isn’t yet an index for the 25-constituent Nasdaq-styled tech board, and none of these stocks are available on the Hong Kong Stock Connect.
But a look at the top 20 most-traded stocks in turnover terms in Shanghai, which counts both the main board and the Star tech board stocks, reveals that 10 of the 11 gainers were all Star tech board stocks. Meanwhile, the Shanghai Composite Index was down 1.5 per cent at 2,864.03.
On other Star stocks: The second highest turnover stock was China Railway Signal & Communication (688009 CH), which is up 8 per cent at 11.42 yuan.
Montage Tech Group (688008 CH) was up 4.1 per cent at 83.09 yuan, and Advanced Micro-Fabrication Equipment (688012 CH) was up 3.6 per cent at 94.3 yuan.
— Georgina Lee


Star Market stocks party on despite gloominess elsewhere 

Foreign investors are selling financial stocks in the Shanghai market through the Stock Connect.
Ping An Insurance (601318 CH) is down 1.7 per cent at 86.02 yuan, China Merchant Bank (600036 CH) is down 1.4 per cent at 35.7 yuan, and Industrial Bank (601166 CH) is down 0.6 per cent at 18.74 yuan.
Overnight, US President Donald Trump said the US would levy a 10 per cent tariff on US$300 billion of additional Chinese goods starting September 1, adding that the tariff could be raised in stages and go beyond 25 per cent.
It's adding to economic growth concerns about China.
Bank of America Merrill Lynch economists said in a research note this week that they expect China policy makers will introduce more policy easing in coming months to buffer growth headwinds, and that the People’s Bank of China will keep interbank liquidity ample while supporting credit growth to the real economy.
“While the (China) central bank is unlikely to cut rates after the Fed decision in July right away, we expect it to cut benchmark interest rate cuts twice in September and November this year,” economists Helen Qiao and Miao Ouyang wrote in the note. The US Federal Reserve delivered a 25 basis point benchmark rate cut, to 2-2.25 per cent, on Wednesday Washington time.
— Georgina Lee


Foreign investors selling financials through Stock Connect

Shares of Bank of Suzhou (002966) rose 20 per cent in their trading debut to 9.43 yuan, from their initial public offering price of 7.86 yuan on the Shenzhen stock exchange.
Trading was halted after the stock surged by its 44 per cent daily limit to 11.32 yuan, even amid a declining market that was roiled by a sudden escalation of the US-China trade war.
— Eugene Tang


Bank of Suzhou hits daily limit in trading debut in Shenzhen 

"The cold hard reality is that trade wars are very bad for economies, and it was clear from Fed Chair Powell’s comments yesterday that the Fed is starting to get quite worried about the trade situation. And so it stands to reason that President Trump’s threat of additional tariffs would send stocks plummeting," Kristina Hooper, chief global market strategist, and David Chao, global market strategist, Asia Pacific (ex-Japan) at Invesco, wrote in a research note.
"We expect in the near term that stocks remain weaker and yields remain lower. However, the stock market is quite resilient and also has a short attention span. President Trump could call off the tariffs, or earnings could continue to come in better than expected, or economic data could improve — and that could be enough to send stocks higher," they continued.
"We expect bond yields to remain somewhat depressed, as Treasuries tend to be a more accurate gauge of fear."
— Enoch Yiu


Markets are 'resilent' and have 'short attention span,' Invesco strategists say about Trump-sparked sell-off

China's rare earth producers soared after Trump's latest tweet about tariffs on Chinese exports, making them the biggest winners amid a declining market.
China Rare Earth Holdings (769 HK) jumped by as much as 30.6 per cent in Hong Kong to HK$0.64. JL Mag Rare Earth Company (300748), the Jiangxi refiner that Chinese President Xi Jinping visited in May, jumped by its 10 per cent daily limit to 39.01 yuan.
Chengdu Galaxy Magnets (300127 CH), which makes neodymium iron boron magnets in Sichuan province, also jumped by its 10 per cent daily limit to 17.12 yuan.
Advances were also seen in China Northern Rare Earth Group High-Tech Company (600111 CH), China Minmetals Rare Earth (000831 CH), Rising Nonferrous Metals Share Company (600259 CH) and Shenghe Resources Holding ( 600392 CH), with gains of between 3 per cent and almost 7 percent. 
Check out a cool interactive graphic about rare earths here.
This story looks at what options other countries have to source rare earths other than in China. 
— Eugene Tang 


China rare earths soaring over Trump's latest threat

Gold-linked stocks are jumping.
Zhaojin Mining (1818 HK) rose 2.5 per cent to HK$8.79. Shandong Gold Mining (600547 CH), the eighth most traded stocks in turnover terms by foreign investors via the stock connect in Hong Kong, was up 2.9 per cent at 41.25 yuan.
Exchange traded funds backed by the precious metals also gained, with ValueGold ETF (3081 HK) up 2.1 per cent at HK$34.8; SPDR Gold Trust (2840 HK) up 1.8 per cent at HK$1,057; and Hong Kong-listed Shandong Gold Mining (1787 HK) up 1.8 per cent at HK$15.
In the spot market, gold dropped about 1 per cent to US$1,4431.1, after it rose 2.2 per cent to US$1,445.18 on Thursday, edging close to the six-year high reached on July 18 when it was quoted at US$1,446.1.
The surge in gold since June has come amid more dovish central bank stances globally, and increased headwinds from the current US China trade war that got more fierce overnight after US president Donald Trump said he would slap a 10 per cent tariff on another US$300 billion Chinese goods starting in September. These factors have increased gold’s appeal as safe haven asset.

— Georgina Lee


Gold -related stocks and ETFs hop up after Trump raises stakes in trade war

China’s Foreign Minister Wang Yi said adding further tariffs was not the way to solve trade frictions between Beijing and Washington, following US President Donald Trump’s announcement that he would target US$300 billion of Chinese goods.
“I am aware of [the announcement],” Wang told reporters on the sidelines of a meeting of Southeast Asian nations in Thailand. “Adding tariffs is definitely not a constructive way to solve the economic and trade frictions. It is not a correct way.”
Trump said overnight that he would impose new tariffs on US$300 billion worth of Chinese imports after high-level trade talks that he said had produced too little in terms of concessions from Beijing.
Read full story by Teddy Ng here. 


China's foreign minister says Trump's tariff threat 'not a constructive way' to solve trade war

Han’s Laser Technology Industry Group (002008 CH), one of foreign investors’ favourite stocks, plunged 9 per cent at 26.01 yuan by the lunch break.
It said in a Shenzhen stock exchange announcement that it had received a decision from the China Securities Regulatory Commission (CSRC) requiring it to make certain corrective actions.
The CSRC has issued the decision following an investigation in July on its European operations, which revealed that the company did not seek board members’ approval for a research centre under construction, which has a total construction cost of 1.06 billion yuan.
“Such project under-construction constitutes a significant acquisition of asset, and should go through approval from the company’s board,” the CSRC was quoted in the Chinese language exchange announcement as saying.
The research centre, which is located in Switzerland and is expected to be completed by the end of 2020, has recently in the spotlight for its investment amount that far exceeded budgets and construction work that is far behind schedule.
The statement came on the heels of another last night, saying its chairman apologized for making inappropriate comments when answering media inquiries, as reported earlier in this blog.  In a phone interview, Gao Yunfeng blamed a reporter from state-run China Central Television for making a fuss about the company’s investment in its research and development centre in Europe.
— Georgina Lee
 


Han's Laser — popular with foreign traders — plunges after securities watchdog corrective order

The Shanghai Composite Index lost 1.4 per cent, closing at 2,867.84. That was its biggest fall since July 8.
The CSI 300, which tracks blue chips trading on both Shenzhen and Shanghai, also lost 1.4 percent, closing at 3,747.44. That was its biggest drop since July 8 as well.
The decline in Shanghai was led mainly by financials.
Ping An Insurance (601318 CH) was down 1.7 per cent at 86.03 yuan, China Life Insurance ( 601628 CH) was down 1.8 per cent at 29.03 yuan, and Industrial and Commercial Bank of China (601398 CH) was down 0.9 per cent at 5.56 yuan.
Despite the losses, however the Shanghai index managed to end with a weekly gain of 0.7 per cent.
The drops in A shares mirrored those in Hong Kong and other Asian markets.
The Tokyo Nikkei 225 plunged 2.1 per cent.
The falls came after US president Donald Trump escalated the trade war again, saying the US would levy a 10 per cent tariff on US$300 billion of additional Chinese goods starting September 1. He added that the tariff could be raised in stages and go beyond 25 per cent.
Such an unexpected outcome following the US China trade negotiations, which closed Wednesday in Shanghai, has raised more concerns about China's economic growth.
Index heavyweights PetroChina (601857 CH) fell 2 per cent to 6.33 yuan, while liquor giant Kweichow Moutai (600519 CH) was down 0.5 per cent at 954.45 yuan.
“For now, investors are continuing to focus on stocks with a focus on the domestic Chinese market. As a result, there was some rebound and bargain hunting among selective consumer, retail-related stocks today,” said Alex Wong, a director at Ample Finance Group.
Foshan Haitian Flavoring and Food (603288) was up 0.6 per cent at 97.45 yuan, and China International Travel Service (601888 CH) was up 1.1 per cent at 90.47 yuan.
Rare earth related stocks surged, many hitting or almost hitting the 10-per cent daily up limit. The sector benefited from resurfacing speculation that the mineral would be used as bargaining chip in the China-US trade war. Chengdu Galaxy Magnets (300127 CH) rose to 17.12 yuan, JL Mag Rare-Earth  (300748 CH) closed at 49.01 yuan, China Minmetals Rare Earth (000831 CH) rose to 14 yuan, and BGRIMM Tech (600980 CH) rose to 15.66 yuan.
— Georgina Lee 


Shanghai falls 1.5 per cent — its biggest decline in three weeks

Property stocks may pick up next week, says Alex Wong, a director at Ample Finance Group. 
Selective Hong Kong properties are oversold, he said. They've been battered by protests, growing concerns about the city's economy and today's reescalation of the trade war.
Two property stocks today posted gains, signalling investors believed they were oversold and worth picking up before their prices go up more.
Link REIT (823 HK) rose 1.8 per cent to HK$92.10, ending nine-straight days of decline.
Hang Lung Properties (101 HK) closed up 1.7 per cent to HK$19.04. Together the duo were the only two in the 50-constituent blue chip index to buck its downward trend.
Link REIT and Sun Hung Kai Properties (16 HK) are oversold at current levels, he said.
“Under the current low interest rate environment, for Hong Kong property stocks yielding at 4 per cent, if you look at their price-to-earning multiples, for example, their current level has already reflected the potential slowdown that the protests had inflicted on their businesses,” said Wong. Yield is the income returned on an investment, including dividends.
Sun Hung Kai Properties has a yield above 4 per cent, with a price-to-book ratio — the ratio of the share price divided by its total assets minus its liabilities — of 0.62 for the current year. That suggests is is oversold, he said. It closed down 0.74 per cent at HK$120.80. Over the past two weeks, it has dropped by as much as 11.3 per cent.

— Georgina Lee 


Crystal Ball: Some property stocks are oversold, and will rebound next week, says trading pro Alex Wong 

Dalian Zeus, a Shenzhen listed firm, said today that it has been put under formal investigation by the China Securities Regulatory Commission (CSRC).
The authority launched an investigation into the controlling shareholder Zhu Ye last year. Some initial findings concluded Zhu allegedly misappropriated more than 200 million yuan from the company's account in 2017.
Dalian Zeus is a gaming company little known outside of China. In 2015, it made headlines after Zhu dished out $2.35 million for a private lunch date with the legendary investor Warren Buffett.  
Zeus plunged by daily 10 per cent limit in the morning to 3.2 yuan.
— Yu Xie 


Dalian Zeus plunges after revealing it is being investigated

The Hang Seng Index lost 2.35 per cent to close at 26,918.58, after a sell-off sparked by US president Donald Trump's decision to reescalate the trade war.
That was the benchmark's biggest decline since May 9. It left the index at its lowest level since June 5. 
Trump said the US would levy a 10 per cent tariff on US$300 billion of additional Chinese goods starting September 1, adding that the tariff could be raised in stages and go  beyond 25 per cent.
For the entire week, the Hang Seng lost 5 per cent, dragged down by gloomy Hong Kong second-quarter GDP data showing the economy shrank 0.3 per cent from the first quarter. That was worse than the expected 0.9 per cent growth.
Two months of protests are weighing on the economy. Also, the US Fed interest rate cut was on the small side and came with message from chairman Jerome Powell not to expect a series of reductions to follow. 
“Intraday, there was actually some selective bottom-fishing of stocks that had dropped considerably this week. ... The problem now is that both within and outside Hong Kong, the economic outlook is deteriorating,” said Alex Wong, a director at  Ample Finance Group.
The good news is that Wong sees the index rebounding. Next week, it will be capped at the 27,200 – 27,300 level, he predicts.
Driving the index down were China social media and game giant Tencent (700 HK), which fell 3.8 per cent to HK$355.8, insurer AIA (1299 HK), which fell 1.9 per cent to HK$78.15, Ping An Insurance (2318 HK), which fell 2.5 per cent to HK$90.9, and Hong Kong Exchange & Clearings (388 HK), which slid 3.2 per cent at HK$256.20.

— Georgina Lee 
 


Stocks Blog: Hong Kong, China shares hammered after Trump escalates trade war

Wait to buy, then look at battered consumer, infrastructure stocks in China, says strategist Kenny Wen Crystal Ball: Some property stocks are oversold, and will rebound next week, says trading pro Alex Wong

Wait to buy, then look at battered consumer, infrastructure stocks in China, says strategist Kenny Wen

Crystal Ball: Some property stocks are oversold, and will rebound next week, says trading pro Alex Wong