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Louise Moon

Azar Zaidi

Market sentiment looks set to be cautious on Monday after a battering last week, following China’s yuan breaching the psychological threshold of 7 against the US dollar, escalating the US-China trade war.
On Friday, Chen Yuan, a former deputy governor of the People’s Bank of China, said at a China Finance 40 meeting in Yichun, Heilongjiang province, that the US labelling China a currency manipulator “signifies the trade war is evolving into a financial war and a currency war”. He said policymakers must prepare for long-term conflicts.
US President Donald Trump, meanwhile, said it was “fine” if planned talks in September were called off.
In Hong Kong, protests continued to escalate for a 10th consecutive weekend, with police again using tear gas against protesters, who hurled projectiles and petrol bombs. The social unrest is the biggest challenge to Chinese control of the city since it was handed back by the UK in 1997, and is increasingly starting to impact the economy.
Markets in Japan, Singapore, India, Malaysia, Philippines and Thailand are shut for various public holidays on Monday.
Stay with us, Azar Zaidi and Louise Moon in Hong Kong, as we track developments in the Hong Kong and mainland China markets. 


Stocks Blog: Hang Seng ends lower amid Cathay decline, flight cancellations 

Business

Markets


Mainland China markets boosted by margin financing, short selling relaxation 
Hang Seng Index ends day 0.44 per cent down at 25,824.72



The benchmark was dragged down by Swire Pacific, the Hang Seng’s worst performer on the day. The parent company of Hong Kong flag-carrier Cathay Pacific Airways shed more than 6 per cent to its lowest level since May 2018, after the airline dropped 4.85 per cent to its lowest level in 10 years.


Live

Overnight markets/ What futures foretell:
– US markets all closed lower on Friday. The S&P 500 fell 0.66 per cent, Nasdaq dropped 0.99 per cent and Dow Jones Industrial Average shed 0.34 per cent.
– Hong Kong futures are up 0.01 per cent to 25,886, while the China A50 futures are down 0.67 per cent to 12,987.74.
IPO debuts: None.
Economic statistics/Central bank action: None.
Corporate events: earnings, meetings, news conferences:
Changchun High & New Technology (000661 CH), Huacia Bank (60015 CH), Poly Developments (60048 CH) and Wheelock (0020 HK) are due to report earnings.


Morning guidance

Forestry company Greenheart Group (0094 HK) said on Sunday it expected to record a “significant” increase in its net loss for the first six months this year, compared with the same period in 2018. This follows a decrease in profits from its New Zealand division, due to weakening market demand from China, potentially caused by the US-China trade war, the firm said, among other reasons.
Greenheart ended flat on Friday at 26 HK cents.
China Shanshui Cement Group (0691 HK) posted a 59 per cent increase in net profit for the first half of 2019, at 1.2 billion yuan (US$169.9 million), compared with the same period last year. Its revenue grew 40 per cent to 9.4 billion yuan.
The stock was down 1.7 per cent to HK$2.9 on Friday, but is up 37.44 per cent so far this year.
– Louise Moon


Overnight filings with the Hong Kong stock exchange

In Hong Kong, the benchmark Hang Seng Index opened 0.14 per cent lower at 25,903.56. On the mainland, the Shanghai Composite Index rose 0.37 per cent at the open to 2,785.26, while the CSI 300 of large caps gained 0.5 per cent to 3,652.53.
– Louise Moon


Hang Seng opens lower, while Shanghai Composite, CSI 300 post gains

Major Hong Kong property tycoons such as Richard Li, Peter Lee, Raymond Kwok and Henry Cheng, among others, have joined more than 700 pro-Beijing business figures in a joint petition to “support Carrie Lam and [the Hong Kong government”, and have called for an end to protests in the city.
 
Major HK property tycoons, including Richard Li, Peter Lee, Raymond Kwok, Henry Cheng, etc, have joined 700+ pro-Beijing figures in a joint petition ytd to “support Carrie Lam and govt” to stop the unrest and restore order. pic.twitter.com/exd3CdGall
— Alvin Lum (@alvinllum) August 11, 2019


Property  tycoons in pro-government petition

Goldman Sachs has increased its estimate for the potential effect on economic growth of the trade war that has raged between the United States and China for the past year, cutting its fourth-quarter US growth forecast by 0.2 percentage points to 1.8 per cent.
“Fears that the trade war will trigger a recession are growing,” the firm’s US economists said in a research note on Sunday. “We expect tariffs targeting the remaining US$300bn of US imports from China to go into effect and no longer expect a trade deal before the 2020 election.”
Uncertainty over trade policy may lead businesses to be more pessimistic and “invest, hire or produce less,” Goldman said.
Read the full report here.
– Chad Bray


Fears trade war will trigger US recession are growing: Goldman

Shares in Cathay Pacific were slammed to their lowest level in 10 years in early morning trading, after a warning from China’s aviation regulator following staff involvement in the Hong Kong protests.
By about 9.45am, the stock had declined almost 4 per cent to HK$9.89, reaching its lowest level since June 2009.
On Friday, the Civil Aviation Administration of China told Hong Kong’s flagship carrier any staff members that had taken part in the city’s protests would not be allowed to fly to or from the mainland, in a first warning shot at a Hong Kong-based corporate giant.
It also said the airline would have to submit identification details of all aircrew operating all services using mainland China airspace. The firm earlier said it would not stop staff members from taking part in the demonstrations.
No Cathay Pacific, Cathay Dragon or HK Express flights were delayed or cancelled on Saturday or Sunday, the company said.
Elsewhere, the company announced two of its airport employees had been sacked for leaking passenger information about a Hong Kong police football team that had been on a flight to mainland China. It has also suspended a pilot who was among the dozens of people charged with rioting on July 28.
– Louise Moon
 
Ahead of the Hong Kong stock market open @cathaypacific is set to open 3% lower pushing to HK$10 a share, following a warning from China’s aviation regulator over flight safety and staff involvement in the Hong Kong protests
— Danny Lee (@JournoDannyAero) August 12, 2019


 Cathay shares at 10-year low

Markets will recover from tariffs once there is an outcome of the US-China trade war, according to Aaron Anderson and Mike Hanson, both senior vice-presidents of research at US-based money manager Fisher Investments.
“Because the overall amount of tariffs is tiny relative to the size of these economies, the markets will get over this quickly once we have a result,” they said in a note. “There will be winners and losers on both sides – that’s the nature of tariffs, which are essentially a form of taxation. But the overall magnitude is tiny.”
What is important is to lift the uncertainty and find results “one way or the other”. The market will then move on quickly, they said. “People underestimate just how adaptive and resilient global markets can be,” they said. “Tariffs increase the constraints to a small extent, but the world is very resilient and adaptive.”
– Louise Moon


Markets will adapt to tariffs quickly, Fisher Investments says 

Kweichow Moutai (600519 CH), the world’s largest distiller, gained 4.12 per cent to 1,001.7 yuan on Monday morning. Elsewhere, Citic Securities raised its target price for the stock to 1,200 yuan per share, on expectations the brand will further consolidate and continue to grow with the help of reforms in marketing channels, the brokerage said in a report.
In its latest announcement, Kweichow Moutai said it would sell liquor worth up to 5.6 billion yuan to parent company, Moutai Group, this year.
As of Monday morning, its stock had risen almost 70 per cent for this year. It is nearing an all-time high, hit on July 1, of 1,035.60 yuan.
Read a full report here.
– Louise Moon


Kweichow Moutai rises about 4 per cent to 1,001.7 yuan

Mainland China property developer Evergrande Group (3333 HK) shed 3.15 per cent to HK$18.44, its lowest level since November 2018, after forecasting weak growth.
In a post to the stock exchange late on Friday evening, the company said it expected a 49 per cent fall in profit for the first half this year, compared with the same period last year, to about 27 billion yuan (US$3.82 billion). Net profit is also expected to drop, by 45 per cent to about 30 billion yuan.
Evergrande said the decrease was due to a drop in floor area of properties delivered during the first six months.
The stock has fallen around 21 per cent so far this year.
– Louise Moon


Evergrande drops about 3 per cent on weak growth forecast

Sunny Optical (2382 HK), China’s largest manufacturer of smartphone camera modules, rose 2.7 per cent to HK$85.25 after announcing an increase of 23 per cent year on year in July in shipment volumes of handset lens sets. In a filing with the Hong Kong exchange late on Friday evening, the company said this was mainly down to an increase in its market share of handset lens sets.
– Louise Moon


Smartphone lens maker Sunny Optical rises on increased shipment volumes

Guangzhou Automobile Group (2238 HK) seems little affected by two spells of bad news. GAC Honda, a joint venture with Japan’s Honda, will recall more than 222,000 vehicles in China from August 30. According to a report on Saturday by the state-run Xinhua News Agency, which cited the General Administration of Quality Supervision, Inspection and Quarantine, the recall is for faulty parts that could pose a safety risk. Elsewhere, on Friday the company said vehicle sales for July were down 6.89 per cent year on year to 1.15 million.
Its stock rose 0.4 per cent to HK$7.51 during morning trading.
– Louise Moon


 Guangzhou Automobile stock little affected by recall, sales drop 

NVC Lighting Holding  (2222 HK) rose 81.4 per cent to HK$1.27, its highest level since August 2014, after it said it will declare a special dividend following the sale of a 70 per cent stake in its China lighting business to private equity firm KKR & Co. KKR will buy the stake for US$794 million, and NVC will continue to own 30 per cent of the business. The company will pay a dividend of at least HK$0.9 (US$0.01) per share. It said it will use proceeds from the disposal to expand its international business through mergers and acquisitions.
– Louise Moon


 NVC stock lights up on special dividend announcement 

UBS has cut its growth forecast for China’s economy this year and in 2020, citing the latest proposed tariffs by the United States on Chinese imports and a US export ban on Huawei Technologies.
The latest tariffs escalation will lower China’s gross domestic product growth by at least 30 basis points over a 12-month period and “the biggest hit” will be in the fourth quarter, Tao Wang, UBS’s chief Asia and China economist, said in a research note.
“Although the White House expressed interest in continuing trade talks with China after escalating tariffs and labelling China a ‘currency manipulator’, it is not clear whether the US actually wants a trade deal,” Tao said. “In the meantime, we think the escalations have likely hardened China’s position.”
The investment bank downgraded its China GDP forecast for 2019 to 6.1 per cent from 6.2 per cent, and its 2020 forecast to 5.8 per cent from 6.1 per cent.
Read the full report here.
– Chad Bray


UBS cuts growth forecast for China economy 

Paul Chan Mo-po, Hong Kong’s financial secretary, said in an official blog post on Sunday that the city was entering a difficult economic environment amid trade declines and slowing growth.
“Industries like retail, catering and transportation have taken a hit because of the recent violent unrest, with significant revenue drops,” Chan said. “The depressed feeling in society is affecting consumer industries to different degrees.”
He said the fact that 22 countries have issued travel warnings for the city may further hurt tourism, business and investment.
Hong Kong’s economy contracted in the second quarter from the previous three months. It shrank 0.3 per cent on a seasonally adjusted quarterly basis, compared with a 1.3 per cent expansion in the first quarter.
– Louise Moon


City ‘entering a difficult economic environment’: Paul Chan

Mainland China brokerages rallied on Monday on news last week that regulators were relaxing rules on short selling and margin financing.
Citic Securities (600030 CH) (6030 HK), Huatei Securities (601688 CH) (6886 HK), Haitong Securities (600837 CH) (6837 HK) and Guotai Junan Securities (601211 CH) (2611 HK) all rose between 1.5 per cent and 2.9 per cent.
China’s securities regulator and exchanges are almost doubling the number of stocks eligible for short selling and margin financing, from the current 950 to 1,600. The move could help boost equities at a time when Chinese markets have been particularly volatile due to the escalating trade war.
“We expect more active trading in A shares, especially for the smaller cap stocks newly included,” analysts at Morgan Stanley said in a note.
– Louise Moon


 China brokerages boosted by short selling, margin financing relaxation

An economic slowdown due to the protests in Hong Kong comparable with that sparked by the occupy movement in 2014 will take the city “to the brink of recession”, according to a report by Bloomberg Economics.
GDP growth slowed from 3.2 per cent year-on-year in the third quarter of 2014 to 2.6 per cent in the fourth quarter, during Occupy Central. With the economy currently already growing at a slow pace of 0.6 per cent, Hong Kong is “ill placed to absorb a blow from escalating protests”, economists Qian Wan and Tom Orlik said. “It doesn’t take much to tip an economy expanding at such a slow pace into recession.”
Protests this time around are larger in scale, tourism is likely to be badly affected and, even without protests, the trade war and a weak yuan are expected to take a toll.
Property prices, which are a crucial driver of Hong Kong’s economy, meanwhile, could be put at risk. “Sentiment has already been dented by the sluggish economy and trade war. There are anecdotal reports that property viewings have declined significantly in recent weeks,” they said.
– Louise Moon


Economic slowdown comparable with 2014 dip will put city on ‘brink of recession’

The Hang Seng Index ended morning trading a slight 0.01 per cent higher, at 25,941.79, reversing earlier losses. Mainland Chinese bourses have stayed up through the morning. The Shanghai Composite rose 0.7 per cent to 2,794.30, while the CSI 300 of large caps gained 0.9 per cent to 3,668.57.
– Louise Moon


Hong Kong, mainland China stocks up at lunch break

Electronic components manufacturer Maxscend Microelectronics (300782 CH) rose 8.18 per cent to 273.70 yuan in morning trading, its highest level since listing on June 18 for 35.29 yuan.
The company was founded in 2012 by a group of “Silicon Valley returnees”, according to its website, and is headquartered in Wuxi, near Shanghai. It has a market cap of 25 billion yuan.
Many of its competitors were also up on Monday. Among them, BOE Technology Group (000725 CH) rose 1.61 per cent, Shenzhen Sunlord Electronics (002138 CH) gained 6.46 per cent and Huizhou Speed Wireless Technology (300322 CH) added 2.64 per cent.
– Louise Moon


 Shares in Wuxi electronic components maker at highest level since June 18 IPO

Mainland Chinese stocks related to artificial meat rose during the morning. The artificial meat market barely exists in mainland China and trading was predominantly speculative, off the back of a craze overseas. Chinese plant protein maker Yantai Shuangta Food (002481 CH) gained by the maximum 10 per cent to 7.4 yuan. The company has said researching and developing man-made meat will be one of its major areas of focus in the future, according to China Daily.
Hefei Fengle Seed (000713 CH), which produces and sells seeds, agrochemical products and spices, also gained 1.7 per cent to 10.19 yuan. So far this year, its share price has risen by more than 180 per cent. Harbin High-Tech Group (600095 CH), which processes soybeans, gained 3.32 per cent to 7.79 yuan.
– Louise Moon


Fake meat stocks rise in mainland China

Hong Kong conglomerate Swire Pacific (0019 HK) fell 5.4 per cent to HK$77.40, its lowest price since October 2018, dragged down by flag carrier Cathay Pacific Airways (0293 HK).
The carrier warned its staff members on Monday it was adopting a zero-tolerance policy towards employees taking part in the protests in Hong Kong. In a lunchtime note, CEO Rupert Hogg said: “We are all obliged to abide by law at all time. Cathay Pacific Group has a zero-tolerance approach to illegal activities. Specifically, in the current context, there will be disciplinary consequences for employees who support or participate in illegal protests. These consequences could be serious and may include termination of employment.”
Cathay fell as much as 4.7 per cent in morning trading to a 10-year low. The carrier is 45 per cent owned by Swire Pacific, and 22.7 per cent held by Air China (0753 HK) (601111 CH). Air China also fell during the morning in Hong Kong as well as mainland China. In Hong Kong it was down 1.53 per cent, and in China it fell 0.13 per cent.
Swire’s was the biggest loss on the Hang Seng Index during morning trading.
– Louise Moon
BREAKING: CATHAY PACIFIC CEO HOGG TELLS STAFF THEY COULD BE ‘SACKED’ FOR SUPPORTING ILLEGAL PROTESTS: MEMO @SCMPNews https://t.co/xbAV6rNjd8
— Danny Lee (@JournoDannyAero) August 12, 2019


 Cathay drags Swire down to biggest loss on Hang Seng Index

Lifestyle international Holdings (1212 HK), which operates the popular Sogo department stores, said its property in Causeway Bay had recorded a 4.8 per cent decline in sales revenue in the first half of 2019, while overall footfall fell 3.7 per cent, as China’s economy slowed down and global political uncertainties dampened consumer spending. “The anti-extradition protests … in June also played a part in bringing down the traffic footfall and sales revenue of the store,” the company said. Its store in Tsim Sha Tsui did report a 9.5 per cent increase in turnover.
The company’s shares fell by as much as 2.7 per cent to a 12-month low of HK$9.36, after it reported a 2.4 per cent decline in its first-half sales proceeds, and a 1.8 per cent drop in turnover.
The net profit attributable to owners of the company, however, rose by 44.8 per cent to HK$1,286.1 million in the first six months this year, compared with HK$888.1 million in the same period last year, on the back of a positive investment income of HK$427 million.
– Martin Choi and Eugene Tang


Sogo operator says first-half profit up, but sales affected by trade war, protests

Q Technology (1478 HK), which manufactures and sells cameras and fingerprint recognition modules, rose 0.59 per cent to HK$6.85 after posting positive earnings results for the first half of 2019.
In a filing with the stock exchange, it announced a 57.8 per cent increase in revenue – when compared with the same period last year – to 5 billion yuan. its net profit was 180 million yuan, compared with a loss of 51.2 million in the first half of last year.
Reasons for the gain included expansion of the business and an increase in the average selling price of fingerprint recognition module products, which offset a decrease in sales volumes, the company said.
– Louise Moon


Camera, fingerprint recognition modules maker rises on positive earnings

Stocks related to rare earths were down on Monday, reversing surges reported last week in reaction to the escalating US-China trade war.
Shares in JL Mag Rare-Earth (300748 CH) – the company Chinese president Xi Jinping visited in May – fell almost by the daily limit of 10 per cent. It lost 9.79 per cent to 60.98 yuan.
Among others, Chengdu Galaxy Magnets (300127 CH) shed 2.95 per cent and Jiaozuo Wanfang Aluminium Manufacturing (000612 CH) dropped 4.2 per cent to 4.33 yuan.
– Louise Moon


 Rare earths stocks decline, reverse last week’s gains

The Shanghai Composite Index closed 1.45 per cent up at 2,814.99 on Monday, with all sub indices ending positive. The CSI 300 of large caps too began the week on a positive note, gaining 1.8 per cent to 3,699.11.
Traders said the markets were boosted by Beijing relaxing rules and almost doubling the number of stocks eligible for margin financing and short selling, from 950 to 1,600.
“Shanghai is doing quite well today because there is some impetus there,” said Gordon Tsui, managing director of finance house Hantec Pacific. “They are relaxing the liquidity for financial brokerages, so banks will release more liquidity, and it is easier to trade”.
Sentiment is still not great, he said, but traders were taking the relaxation as an excuse for a rebound, after the Shanghai benchmark declined by 3.25 per cent last week to its lowest level since February.
– Louise Moon


Shanghai Composite bounces back to close 1.45 per cent up

The Hang Seng Index dropped to its lowest level since January on Monday, ending the day 0.44 per cent down at 25,824.72. Earlier in the evening, just after 4pm, Hong Kong airport – one of the world’s busiest – cancelled all outbound flights as protesters staged a mass sit-in.
The benchmark was dragged down by Swire Pacific (0019 HK), the Hang Seng’s worst performer on the day. The parent company of Hong Kong flag-carrier Cathay Pacific Airways (0293 HK) shed more than 6 per cent to its lowest level since May 2018, after the airline dropped 4.85 per cent to its lowest level in 10 years.
Sunny Optical Technology Group (2018 HK), meanwhile, was the gauge’s best performer, rising about 3.6 per cent to HK$86 after announcing a 23 per cent year-on-year increase in shipment volumes for July.
– Louise Moon
 



  Hang Seng ends day at lowest level since January amid airport shutdown

China’s car deliveries continued to shrink in July, extending a historic decline, according to data from the China Association of Automobile Manufacturers.
Sales of sedans, sports utility vehicles, minivans and multipurpose vehicles fell 3.9 per cent from a year earlier, to 1.53 million units, for their 13th consecutive month of declines.
Car makers reported a mixed reaction. BYD (1211 HK), Great Wall Motors (2333 HK), Brilliance China Automotive Holdings (1114 HK) and BAIC Motor Corp (1958 HK) all rose between 0.2 per cent and 1.12 per cent.
But Guangzhou Automobile Group (2238 HK), Geely Automobile Holdings (0175 HK) and Dongfeng Motor (0489 HK) dropped between 0.4 and 0.6 per cent.
– Louise Moon


Stocks Blog: Hang Seng ends lower amid Cathay decline, flight cancellations

Mainland China markets boosted by margin financing, short selling relaxation Hang Seng Index ends day 0.44 per cent down at 25,824.72

Mainland China markets boosted by margin financing, short selling relaxation

Hang Seng Index ends day 0.44 per cent down at 25,824.72