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Louise Moon

Azar Zaidi

What does Tuesday hold for markets in Hong Kong and mainland China? Monday was supposed to be all about the US-China trade war weighing on sentiment. 
But the Hong Kong protests have assumed more importance in the special administrative region, best illustrated by flag-carrier Cathay Pacific moving swiftly to head off potentially being locked out of the lucrative mainland market. And that is before the airport shut down and all hell broke loose. How will the city deal with the fallout on Tuesday?
In China, markets reacted favourably to regulators relaxing rules around short selling and margin financing, but will that optimism last? If so, for how long?
Stay with us, Louise Moon and Azar Zaidi in Hong Kong, as we try and make sense of another day of trading on the bourses of the city and the mainland.


Stocks blog: Hang Seng Index drops to its lowest level since January 3

Business

Markets


No imminent recovery for Hang Seng as poor earnings worsen decline, Geo Securities says 
Shanghai Composite, CSI 300 swing to losses 

 
 
 


Share prices of several major firms on the Hong Kong exchange declined on Tuesday after posting weaker first-half earnings, including China Literature and Macau casino giant Galaxy Entertainment Group. 


Live

China Rundong Auto Group (1365.HK), a luxury car dealer in eastern China selling BMWs, Maseratis and Ferraris, said chairman Yang Peng and controlling shareholder Rundong Fortune Investment, which owns 40.66 per cent of the company, had failed to repay US$60 million in bridging loans excluding interest to several lenders as of last Thursday. Since the loans used stakes in the company as collateral, the default may allow creditors to take control of the company. Yang and Rundong Fortune are exploring ways to repay the loans. The company requested a suspension in trading of its shares on Friday, and will apply to resume trading on Tuesday. It last traded unchanged at 47.5 HK cents on Thursday, before the suspension.
Chinese theatre operator SMI Holdings Group (198.HK) said Hong Kong’s High Court had ordered Television Broadcasts (511.HK) to be a substituting petitioner in a winding-up petition against the company, while the hearing will be fixed on or after November 4. TVB, Hong Kong’s dominant broadcaster, in March posted a net loss of HK$199 million (US$25.3 million) for 2018, down from a net profit of HK$243 million a year earlier, mainly because of a write-off on bond holdings issued by SMI Holdings Group. SMI shares have been suspended since September last year. TVB last traded at HK$11.76 on Monday, down 0.68 per cent from the previous close.
EGL Holdings Company (6882.HK), a travel company specialising in arranging package tours to Japan, expects its net profit for the first half this year will be significantly lower than a year earlier. The decline was because of a rise in operating expenses of its hotels business, which arose from a depreciation in property, plant and equipment following the completion of construction of the group’s hot springs bath building in March this year. The group said it would diversify into more long-term business growth in light of recent market conditions. The company will announce its first-half results at the end of August. It closed 6.78 per cent higher on Monday at 63 HK cents.
– Enoch Yiu


Overnight filings on the Hong Kong stock exchange

Overnight markets/ What futures foretell:
– US markets all closed lower or flat on Monday. The S&P 500 fell 1.22 per cent, the Nasdaq remained flat and the Dow Jones Industrial Average shed 1.48 per cent.
– Hong Kong futures are down 1.02 per cent to 25,300, while the China A50 futures are up 1.93 per cent to 13,238.60.
IPO debuts: None.
Economic statistics/Central Bank action: None.
Corporate events: earnings, meetings, news conferences:
Circuit board manufacturer Avary Holding Shenzhen (002938 CH), Foxconn Industrial (601138 CH), casino giant Galaxy Entertainment (27 HK), meat processor Henan Shuanghui (000895 CH), smartphone components maker Sunny Optical (2382 HK) and WH Group (288 HK), the world’s largest pork producer, are all reporting earnings on Tuesday.


Morning guidance

Hong Kong reopened its airport early, after 180 departures were cancelled on Monday in response to thousands of protesters staging a mass demonstration. More than 300 outbound and inbound flights have been cancelled so far on Tuesday, at the world’s third busiest airport by passenger traffic.
The airport disruption is the most severe blow to the city’s economy since protests began more than two months ago. All eyes will be on airlines today, in particular, Hong Kong flag carrier, Cathay Pacific.
Beijing, meanwhile, has started to describe events in Hong Kong as “terrorism”. Businesses are starting to be hit as political unrest overtakes Hong Kong, adding to already heightened trade concerns and dampening sentiment.
– Louise Moon


Hong Kong airport reopens

In Hong Kong, the Hang Seng Index dropped 0.99 per cent at the open to 25,567.82, following declines in the US. The S&P 500 index dropped overnight in America to 5 per cent below an all-time high, as markets remain fragile over a global economic slowdown and a trade war that is not going away.
Mainland China exchanges reversed Monday’s gains, with the Shanghai Composite Index falling 0.73 per cent to 2,794.32 at the open. The CSI 300 of large caps shed 0.75 per cent to 3,671.31.
– Louise Moon


Hong Kong, mainland markets drop at the open

Cathay Pacific Airways (0293 HK) rose slightly at the open on Tuesday, after its stock tumbled to a 10-year low on Monday, before falling 0.82 per cent to HK$9.72. The airline faces being locked out of mainland China after Beijing banned its staff members involved in the ongoing protests in Hong Kong. Flights originating in China and Hong Kong account for about half of the company’s revenue. 
Bloomberg reported on Tuesday Chinese state-run companies had told employees they should avoid flying with the airline.
The carrier’s parent company, Swire Pacific (0019 HK), continued to drop and has lost 1.11 per cent, touching its lowest level since May 2018. According to reports on Monday, the Civil Aviation Administration of China said its deputy director met Merlin Bingham Swire, the company’s chief executive, in Beijing.
Cathay’s second-largest shareholder, Air China (0753 HK) (601111 CH), rose 0.31 per cent in Hong Kong, but dropped 1.53 per cent in China.
– Louise Moon


Cathay, parent Swire Pacific decline further

Mainland Chinese lender Bank of Communications (Bocom) downgraded its rating for Cathay to “neutral”, with a price target of HK$11.17, on Tuesday.
The bank said the downgrade reflected near-term uncertainty, with the protests in Hong Kong affecting the local aviation industry.
Bocom analysts Luya You and Maggie Wang said in a note that Chinese authorities’ warning to the airline might be a sign harsher restrictions are to come. They forecast fares and inbound traffic falling as the impact of the protests on passenger demand grows.
– Louise Moon


Bocom downgrades Cathay to ‘neutral’

Biopharmaceutical and health care company Changchun High & New Technology Industries Group (000661 CH) shed as much as 5.3 per cent, after it reported slower growth in the first half. The company said its net profit was up 32.6 per cent year on year for the first six months of 2019 to 726.6 million yuan (US$102.95 million). This is down from 73.7 per cent growth in the first quarter, and a 52.1 per cent growth through the whole of 2018. The stock has still risen about 90 per cent so far this year.
– Louise Moon


Biopharma firm Changchun High & New Technology declines on slower growth

Hong Kong-listed property developers were down across the board during morning trading. Sun Hung Kai Properties (0016 HK) dropped by 1 per cent, CK Asset Holdings (1113 HK) by 1.42 per cent, Henderson Land Development (0012 HK) by 1.6 per cent and Hongkong Land Holdings by 3.3 per cent. New World Development (0017 HK) also shed 1.28 per cent, Wheelock and Co (0020 HK) lost 1.76 per cent, Wharf Holdings (0004 HK) fell 3.01 per cent and Kerry Properties (0683 HK) declined 1.09 per cent.
The declines are not necessarily a reaction to the protests. The developers have seen weeks of losses as the market feels the strain from an economic slowdown in mainland China, lack of progress in the US-China trade war and political unrest in Hong Kong.
Despite this, New World Development reported that contracted sales in Hong Kong for the full year ending June 30 amounted to about HK$10.5 billion, surpassing a sales target of HK$10 billion. The stock has declined for the past three weeks.
– Louise Moon


Property Developers decline across the board in Hong Kong 

The Hang Seng has fallen to its lowest level since January 3, the second day of trading this year, and is looking like it is en route to its lowest level so far this year.
By around 10.20am, it was down 1.52 per cent to 25,431. All sub indices were down too, with only three of its 50 member stocks trading higher. These included smartphone components maker Sunny Optical (2382 HK), apparel company Shenzhou International Group (2313 HK) and Ping An Industrial Group (2318 HK). Sunny Optical led the pack with a 1.05 per cent rise.
– Louise Moon


Hang Seng en route to its lowest level this year

WH Group (0288 HK), the world’s largest pork company, was one of the biggest drags on the Hang Seng Index during morning trading, losing 3.35 per cent to HK$6.63 for a second day of declines. The stock is now at its lowest level since January 14.
The company is due to report its second-quarter earnings after market close on Tuesday. Of 15 analysts polled by Reuters, 13 rated it as “buy”, one as “hold” and one as “sell”. The average 12-month price target set was HK$9.9, a 44.3 per cent increase from its last closing price.
Overnight in the US, meat processing company Smithfield Food, which is owned by WH Group, announced it had launched a line of soy-based meat products called The Pure Farmland, joining in with the meat alternatives craze. The company plans to role out the brand to more than 5,000 stores by February 2020, as well as branching out into the food services sector, according to Reuters.
– Louise Moon


WH Group trading at its lowest level since January 14

Shenzhen Airport Company (000089 CH) has risen 9.18 per cent to 10.35 yuan, almost reaching the daily limit of 10 per cent. The company, owned by privately held Shenzhen Airport Group, has hit its highest level since June 2015, as investors bet on the airport, which sits across the border from Hong Kong in mainland China. Hong Kong’s airport reopened on Tuesday, but hundreds of flights have been cancelled after it was shut down on Monday.
Meanwhile, Cathay Pacific (0293 HK) has dropped a further 4 per cent to HK$9.4, remaining at its lowest level in 10 years.
– Louise Moon


Shenzhen Airport stock soars, Cathay down another 4 per cent 

Shares of online games developer Netdragon Websoft Holdings (0777 HK) rose 3.9 per cent to HK$19.2, after it said it expected to report a substantial increase in net profit for the first half of the year, compared with the same period last year. Its stock has risen 60 per cent so far this year. This is due to significant improvements in business performance, the company said without giving further information. Its result is due on August 28.
– Louise Moon


Online games firm Netdragon to report substantial increase in net profit

Home appliances maker Gree Electric (000651 CH) rose 2.56 per cent to 51.67 yuan on plans by state-owned controlling shareholder, Zhuhai Gree Group, to sell a 15 per cent stake, or 902.4 million shares, at no lower than 44.17 yuan per share. The parent firm plans to sell the shares to outside investors, as part of mixed ownership reforms encouraged by Beijing. Zhuhai Gree Group currently owns 18.22 per cent of the company.
– Louise Moon


Gree Electric rises on parent firm’s divestment plan

Gold producers are among the few sectors bucking a decline in the broader market on Tuesday, with Shandong Gold Mining (600547 CH) and Zhongjin Gold (600489 CH) rising almost 3 per cent in mainland China trading at the break. Bullion prices are trading close to their highest in six years, as the ongoing protests in Hong Kong and the fallout of the US-China trade war rattle global financial markets, spurring demand for safe assets. Shandong Gold advanced 3.2 per cent to 47.55 yuan in Shanghai and its Hong Kong-traded stock surged 6.8 per cent to HK$18.88. Zhongjin Gold rose 2.8 per cent to 10.22 yuan and Hunan Gold (002155 CH) added 1.6 per cent to 9.71 yuan.
– Zhang Shidong


Gold stocks are bright spot in falling market

Electrical components and equipment company Shenzhen Desay Battery Technology (000049 CH) rose 6.6 per cent to 37.65 yuan in morning trading after investment bank China International Capital Corporation raised its target price by 43 per cent to 50 yuan. Desay Battery’s first-half net income was up 28 per cent from the same period a year earlier, while sales increased 16 per cent. The CICC upgrade follows an increase in orders from Huawei Technologies, which has helped drive the company’s sales growth. Analyst Hu Yujing said Huawei’s contribution to Desay Battery’s sales in the first half is likely to increase from 18 per cent to 26 per cent. Hu said the company can maintain a high growth rate as it can supply Huawei in areas including smartphones, tablets and laptops. The new target price represents a 42 per cent increase from the stock’s close on Monday.
– Louise Moon


Electrical components firm Shenzhen Desay rises on CICC upgrade

Pharmaceutical company Tonghua Dongbao (600867 CH) surged by the daily limit of 10 per cent to 15.94 yuan, making it the best performer on the CSI 300 index of large caps in Shanghai and Shenzhen, during morning trading. It came after CICC lifted its price target by 9 per cent to 18 yuan, over optimism about the approval of its insulin product. Analysts Zhang Jin and Zou Peng wrote the product is likely to get approval by the end of the third quarter at the earliest, and it could be a new growth engine for the firm. Their new target price is a 24 per cent rise from the closing price on Monday.
– Louise Moon


Pharma firm Tonghua Dongbao surged by daily limit of 10 per cent

Hong Kong’s Hang Seng Index closed morning trading down 1.86 per cent to 25,345.65, with all sub indices down. Only one stock, smartphone components maker Sunny Optical Technology (2382 HK), was up, by 1.16 per cent. The bourse is at its lowest level since January 3. On the mainland, the Shanghai Composite dropped 0.7 per cent to 2,794.07, its lowest level since the end of February. Only the heath care sub index was in the positive.
– Louise Moon


Hong Kong, mainland China end morning trading lower

The Hang Seng Index looks set for a “temporary reprieve” as it closes in on its lowest level so far this year, said Louis Tse Ming-kwong, managing director at VC Asset Management.
The 25,200 level is a major support for the index, said Tse, who anticipates a brief recovery when prices approach that level. “Those short selling the Hong Kong market will gradually want to square their positions and lock in the gains, and the market will take a breather.”
The Hang Seng traded at 25,345.65 points, down 1.86 per cent, at the lunch break.
Tse warned, however, that the temporary recovery will only happen provided the planned rallies this weekend do not escalate further. This would give institutional investors some confidence the city is not spiralling out of control, he said.
The Shanghai Composite, meanwhile, is “struggling” to sustain a rally sparked off by Chinese regulators relaxing rules around short selling and margin financing.
“There’s strong resistance at 3,000 points,” Tse said. “On China’s trade war with the US, we won’t see the end of the tunnel for quite some time.” The Shanghai Composite was down 0.7 per cent, at 2,794.07 points, at the lunch break.
“With the Renminbi falling below 7, foreign investors are slowly bringing their money [out of China], so China’s foreign reserves are not as good as before. The measures they can use to stimulate the economy are more limited now.”
Beijing allowed the yuan to weaken below the key psychological level of 7 to the US dollar last week after having defended that level for more than a decade.
– Daryl Choo


Hang Seng primed for brief rally if protests slow, VC Asset Management says

Hysan Development (0014 HK), the biggest landlord in Hong Kong shopping district Causeway Bay, said its underlying profit for the half year ending June 30 rose 8.9 per cent to HK$1.39 billion, it said in a filing with the Hong Kong stock exchange on Tuesday during the lunch break. Its turnover rose 9.1 per cent to HK$2.09 billion, while the dividend remained unchanged at 27 HK cents a share. The company’s share price fell 2.4 per cent in the morning session and stood at HK$33.15 at the lunch break on Tuesday.
– Lam Ka-sing


Hysan Development says half-year underlying profit rose 8.9 per cent 

Mainland markets declined on Tuesday afternoon in reaction to Chinese banks having extended surprisingly fewer loans in July. The Shanghai Composite had lost 0.77 per cent to 2,793.10 by about 2pm, while the CSI 300 had fallen 1.02 per cent to 3,661.51. The fewer loans raise pressure on the central bank to further ease policy and support a slowing economy. Banks extended 1.06 trillion yuan (US$150.06 billion) in new yuan loans in July, below analysts’ expectations, according to the People’s Bank of China. Analysts polled by Reuters expected new loans to fall to 1.25 trillion yuan in July, from 1.66 trillion yuan in June.
– Louise Moon


Chinese stocks react to drop in new loans in July, decline further

Shares of listed airports within the “Greater Bay Area” all rose on Tuesday, with hundreds of flights diverted from Hong Kong heading their way on Monday and Tuesday. Shenzhen Airport (000089 CH), which operates the airport in China’s technology hub, jumped by its 10 per cent daily limit to 10.43 yuan. Guangzhou Baiyun International Airport (600004 CH), one of the country’s first listed airport operators, rose by as much as 6 per cent to an intraday high of 19.39 yuan on the Shanghai exchange.
– Eugene Tang


‘Greater Bay Area’ airports' shares take off amid Hong Kong flight cancellations

Monitors and televisions manufacturer TPV Technology (0903 HK) rose 27.84 per cent to HK$3.49 in afternoon trading, its shares reaching their highest level since September 2011, after its controlling parent – state-owned information technology enterprise China Electronics Corporation (CEC) – offered to take the firm private. A unit of CEC offered the privatisation deal at HK$3.86 per share, which would be a 41.4 per cent rise from Thursday’s close. Trading was halted on Friday, pending the privatisation deal announcement on Tuesday morning, when trading resumed. 
– Louise Moon


 TV maker TPV Technology rises on privatisation offer

Tencent-backed online reading platform China Literature (0772 HK) fell 18.15 per cent to HK$23.90, an all-time low, after reporting weaker earnings to the stock exchange during afternoon trading.
The drop came after it posted a 30.1 per cent increase in revenue for the first half of the year, when compared with the same period last year, but a 22.4 per cent fall in net profit, due to an increase in finance costs, as well as rising selling, marketing and administrative expenses. The stock has fallen 34 per cent so far this year.
– Louise Moon


 Tencent-backed China Literature falls 18.15 per cent on weaker earnings

Macau casino giant Galaxy Entertainment Group (0027 HK) on Tuesday posted weaker first-half earnings compared with the same period last year. Its stock shed 5.1 per cent to HK$44.65, becoming the worst performer on the benchmark, and hit its lowest level since November 2018. In a filing to the stock exchange, it said revenue for the first six months of the year was HK$26.22 billion, compared with HK$28.06 billion in 2018. Net profit, meanwhile, was HK$6.68 billion, compared with HK$7.21 billion, both down because of international trade tensions that may have affected customer sentiment and spending habits, it said. Galaxy also said it was seeing increased competition from regional integrated resorts, which are targeting Chinese tourists, and is pursuing the development of such a resort in Japan. It announced a special dividend of HK$0.46 per share.
– Louise Moon


Casino giant Galaxy Entertainment posts weaker earnings, stock down 5.1 per cent

MTR Corporation (0066 HK), considered one of Hong Kong’s safest stocks, fell 3.56 per cent to HK$46.1 in afternoon trading, furthering a loss of 2.75 per cent on Monday. On Monday it urged the police to consider the safety of passengers and staff after tear gas was fired inside Kwai Fong station on Sunday evening during protests. “We have raised our concerns with the police force and urged them to consider the safety of passengers and MTR staff during law enforcement,” a statement by the rail operator said. The stock has been falling sharply from an all-time high of HK$55.75 on July 18. As of last close, it had lost 14.3 per cent since then.
– Louise Moon


MTR shares continue slide, decline about 4 per cent 

Computer hardware company GRG Banking Equipment (002152 CH) rose on news it had won a bid worth more than 127 million yuan (US$17.9 million) by China Post Group Corporation, for super teller machines (STM). It gained 0.93 per cent to 6.53 yuan. So far this year, the stock has added 16 per cent.
– Louise Moon


Computer firm GRG Banking Equipment rises on 127 million yuan contract win

Gold-related companies in Hong Kong rose during afternoon trading, mirroring gains on the mainland for the precious metal, as protests in the city and the US-China trade war spurred demand for safe assets. Lingbao Gold Group Company (3330 HK) rose 17.93 per cent, in its biggest one-day gains since December 2015. China Gold International Resources (2099 HK) rose 5.73 per cent to HK$10.30, in its biggest one-day jump since April 2015. Meanwhile, China Silver Group (0815 HK) rallied 32.63 per cent to HK$1.26 to reach levels last seen in July 2018. Silver typically rises on the back of gains in gold, as a substitute for safe assets.
– Louise Moon


Gold-related companies rise in Hong Kong, mainland China

The Shanghai Composite ends Tuesday down 0.63 per cent at 2,797.26, reversing Monday’s gains. Just two of its sub indices – healthcare and basic materials – have ended up on the day. Meanwhile, the CSI 300 of large caps in Shanghai and Shenzhen shed 0.9 per cent to 3,665.75.
– Louise Moon


Shanghai Composite, CSI 300 swing to losses 

Poor half-year earnings reported on Tuesday have placed weak market sentiment under even greater pressure, said Francis Lun, chief executive of brokerage Geo Securities, who believes the Hang Seng Index could fall to 24,000 before experiencing any form of support.
“There’s no end to the misery in Hong Kong … Things will get worse,” he said. The Hang Seng Index was at 25,313.89, down 1.98 per cent.
Share prices of several major firms on the Hong Kong exchange declined on Tuesday after posting weaker first-half earnings, including China Literature (0772HK) and Macau casino giant Galaxy Entertainment Group (0027HK). 
– Daryl Choo


No imminent recovery for Hang Seng as poor earnings worsen decline: Geo Securities

The Hang Seng Index closed 2.07 per cent down, at 25,291.28, its lowest level since January 3. Just one of its 50 constituent stocks, Sunny Optical Technology (2382 HK), ended the day up, by 0.46 per cent at HK$86.40. Leading declines on the gauge included casino giant Galaxy Entertainment (0027 HK), which dropped 5.85 per cent to HK$44.30.
– Louise Moon


Stocks blog: Hang Seng Index drops to its lowest level since January 3

No imminent recovery for Hang Seng as poor earnings worsen decline, Geo Securities says Shanghai Composite, CSI 300 swing to losses

No imminent recovery for Hang Seng as poor earnings worsen decline, Geo Securities says

Shanghai Composite, CSI 300 swing to losses