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Yujing Liu

Azar Zaidi

What had promised to be a quiet week shortened by the biggest holiday in mainland China and Hong Kong markets has been sparked into life, ironically enough, by the outbreak of an illness that has already proven to be deadly. With more than 300 cases and six deaths confirmed in China, and first cases being reported in Taiwan as well as the United States, the new coronavirus originating in the central Chinese city of Wuhan promises to upend the apple cart.
 
On Tuesday, a swathe of sectors were affected by the news of the outbreak. Shares of airlines, tour agencies, hotels, theme parks and restaurants all declined, amid concerns that fear of the illness will keep people from congregating in public places, hurting earnings in these industries.
 
And this narrative could very well continue on Wednesday, with profit taking a big driver of losses before the Lunar New Year holiday, which starts on Friday in mainland China. 
And if you would like the Live Stocks Blog emailed to you each morning, click here. 
– Yujing Liu and Azar Zaidi in Hong Kong 
Note: Information in this blog is on an "as is" basis and not a solicitation or offer to buy or sell any securities or otherwise; and is not investment/professional advice or services in this regard.  It is subject to our T&C.  SCMP (as defined in T&C) shall not be liable for any loss, damage and costs relating to any investments in securities or otherwise in this connection.


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Business

Markets


Shanghai Composite Index reverses early losses to close 0.3 per cent higher at 3,060.75
Hang Seng Index rises 1.3 per cent to 28,341.04



Blue-chip stocks increase broadly, as the Hang Seng Index rises 1.3 per cent on Wednesday for its biggest daily gain in nine sessions. Meanwhile, on the mainland, the Shanghai Composite closes 0.3 per cent higher, the Shenzhen Component gains 1.1 per cent and the ChiNext Index climbs by 1.4 per cent. 


Live

Overnight markets/ what futures foretell:  – The US market declined on Tuesday, after the country reported its first case of the new coronavirus originating in the central Chinese city of Wuhan. The Dow Jones Industrial Average fell 0.5 per cent, the S&P 500 Index was 0.3 per cent lower and the Nasdaq Composite dropped 0.2 per cent.  – The Hang Seng Index futures added 0.3 per cent. The China A50 futures were 0.3 per cent lower.  IPO debuts: Shares of Guangzhou Jet Biofiltration (688026 SH) will be traded in Shanghai for the first time on Wednesday.  Economic statistics/ central bank action: None to note


Morning Guidance

Haitong Securities (6837 HK) said that, based on a preliminary review of financial information, it expected net profit attributable to shareholders for the full year of 2019 to increase by 80 per cent to 86 per cent from a year ago, or by 4.17 billion yuan (US$603.7 million) to 4.48 billion yuan. In 2018, its full-year net profit totalled 5.21 billion yuan. The company attributed the increase to growth in income from various businesses, including its brokerage, investment banking and asset management units.  – Georgina Lee


Overnight filings

The Wuhan city coronavirus is showing no signs of easing its spread across the world. The US and Taiwan confirmed their first cases of infection on Tuesday, and as many as 324 cases have been reported from across China as of Wednesday morning, according to state broadcaster CCTV. The outbreak has reignited fears about China’s economy, which is still reeling from the country’s drawn-out trade war with the US and is growing at its slowest pace in about three decades.
Read the full report here.


Outbreak reignites fears about China’s economy

The Shanghai Composite Index dropped 0.7 per cent to 3,030.52 in early trading on Wednesday. The Shenzhen Component Index weakened by 1 per cent, while the ChiNext Index declined by 1.2 per cent.
  In Hong Kong, the Hang Seng Index rose above the psychologically important 28,000-point level, gaining 0.7 per cent to 28,178.58.
– Yujing Liu


China stocks tumble at market open, Hong Kong market rises

All sectors in the China market are falling, with agriculture-related stocks leading the declines. A gauge of agriculture shares compiled by Citic Securities has tumbled by 3 per cent. Health experts have said the source of the new coronavirus could be wild animals sold at a wet market in the central Chinese city of Wuhan. Textile and clothing stocks have also trailed, dropping by 2.6 per cent. At 0.7 per cent, property developers have suffered the smallest loss.
– Yujing Liu


Agriculture stocks lead declines in China

The Hang Seng Index has given up all of its gains from early trading, and is currently flat at 27,983.71. Property developers have weighed on the market – Sun Hung Kai Properties (0016 HK) is down 1.4 per cent at HK$117.10.
– Yujing Liu


Hong Kong market gives up gains, drops below 28,000

French skincare maker L’Occitane International (0973 HK) dropped by 3.2 per cent to HK$18.32, after reporting slower sales growth in the third quarter on Tuesday. Its year-on-year sales growth slowed to 15.2 per cent for the three months ending December 31 from 19 per cent in the first half of the financial year, according to an exchange filing.
  Nomura, however, lifted its target price for the stock to HK$22.1 from HK$21.9. Analysts see the brand Elemis owned by L’Occitane as the key growth driver for the company in the future, according to a report published on Tuesday. “We are not concerned about the quarterly fluctuation in Elemis numbers as it is a wholesale business – [the second quarter] is usually the peak season as wholesale customers stock up before the holiday season,” they said.
– Yujing Liu


L’Occitane drops after reporting slower third-quarter sales growth

Taking lessons from the severe acute respiratory syndrome (Sars) outbreak in 2003, investors should switch to investing in the Hang Seng China Enterprises Index from the Hang Seng Index, analysts at Jefferies said in a report published on Tuesday.
  The CSI 300 Index of large caps listed in China gained 10 per cent from the end of 2002 to June 2003, while the H-share Index soared by 37 per cent. On the other hand, the Hang Seng declined 10 per cent, before rebounding quickly after the epidemic was contained, according to the report.
  “We remain constructive on the CSI300/HSCEI indexes and expect the Wuhan pneumonia impact to be very limited on 2020 full-year earnings. Should history repeat itself, investors should switch to HSCEI, from HSI,” the analysts said.
  During the Sars outbreak, telecoms, utilities, energy and financials outperformed. Telecoms led the gains with a 21 per cent jump. Meanwhile, property developers dropped 0.6 per cent and consumer staples declined 3.4 per cent over the period.
  But sub sectors such as food processing, including canned food and instant noodles, condiments including salt, vinegar and oil, and supermarkets outperformed the indexes between January and March 2003, which was the early stage of the Sars outbreak, they said.
  “Some investors may take profits ahead of [Lunar New Year] for fear of weak economic [industrial, consumption, employment] data in [February],” the analysts said.
– Yujing Liu
 




Investors should switch to Hang Seng China Enterprises Index from Hang Seng Index: Jefferies

All of the deaths were reported in central China’s Hubei province, where the virus first spread from the city of Wuhan.
Read the full report here.


China confirms nine dead from coronavirus, 440 infected

Based on what happened during the Sars outbreak in 2003, China’s economy is likely to suffer a blow especially in the services sector, Nomura analysts said in a report published on Tuesday.
  Mainly a result of the outbreak, China’s real GDP growth dropped by 2.0 percentage points from 11.1 per cent in the first quarter of 2003 to 9.1 per cent in the second quarter, before rebounding to 10 per cent in the third quarter of 2003, analysts led by chief China economist Lu Ting said.
  The economy was dragged down mainly by the tertiary sector, especially transport, storage and post, as well as hotels and catering services, they said. The economy was hit hardest in April and May 2003.
  China reported its first case of atypical pneumonia in November 2002. The World Health Organisation issued a global alert for the illness in March 2003, before announcing the outbreak was contained in July 2003.  “Overall, we believe the near-term market focus … is on new infections and whether mortality rates change,” the analysts said.
  “In the positive scenario, where new infections are limited and there is no significant rise in the mortality rate after Lunar New Year, we would expect the market focus to increasingly shift back to the main themes of green shoots of a recovery, the semiconductor cycle bottoming and the possibility of a mini US-China trade deal.
  “However, if near-term developments related to the coronavirus outbreak worsen, the markets could focus on the impact of past viral outbreaks in Asia, such as Sars. Sars had a significant impact on Asia foreign exchange, rates and equities … there was significant selling pressure in equity markets, foreign exchange broadly sold off against US Dollar … and interest rate curves in Asia generally flattened. Under similar conditions, we would expect a similar behaviour, with most of the pressure concentrated on Korean Won and renminbi.”
– Yujing Liu


Virus outbreak to pressure China growth, services sector: Nomura

The Shanghai Composite Index pared some of its early losses to settle 0.2 per cent down at 3,045.03 by the lunch break on Wednesday. The Shenzhen Component Index reversed into gains and added 0.3 per cent, while the ChiNext Index of start-ups also inched up 0.2 per cent.
  Technology shares including semiconductor makers advanced broadly, extending a rally driven by investors’ hopes that earnings will improve as the industry cycle is bottoming out. Jiangsu Jiejie Microelectronics (300623 SZ) jumped by the 10 per cent daily limit to 38.13 yuan. The stock has soared by 45 per cent so far this year, on its recent forecast that its 2019 net profit is likely to increase by 10 per cent to 20 per cent from a year ago.
– Yujing Liu


Tech stocks help China markets narrow losses

The southbound mainland China-Hong Kong Stock Connect is closed on Wednesday, while northbound trading will be suspended from Friday until January 30 because of the Lunar New Year holiday. Southbound trading is trading in Hong Kong shares by mainland China based investors, while the northbound trade involves the buying of mainland China shares by international investor through Hong Kong.
  The Shenzhen and Shanghai stock exchanges will be closed during this period, while Hong Kong’s stock exchange will be closed on January 27 and 28. It will open on January 29 and the Stock Connects will resume on January 31.
  – Kathleen Magramo


Stock Connects suspended during Lunar New Year holiday

The Hang Seng Index swung between gains and losses in morning trade to rise 0.8 per cent to 28,210.93 by the lunch break on Wednesday.
  Apple suppliers rose on media reports that the smartphone maker was planning to launch a cheaper version of the iPhone in 2020. Smartphone components maker Sunny Optical Technology (2382 HK) added 3.7 per cent and AAC Technologies Holdings (2018 HK) gained 3.1 per cent.
  Chinese smartphone maker Xiaomi (1810 HK) rose 4.9 per cent on expectations that it will launch more 5G models this year.
– Yujing Liu


Hong Kong market rises at lunch break

Television Broadcasts (0511 HK), Hong Kong’s biggest television broadcaster, surged by 7.2 per cent to HK$12.74, after it said its chairman will resign, confirming a report in the South China Morning Post. Charles Chan Kwok-keung, a high-profile dealmaker in the Hong Kong stock market, has also signed an agreement to dispose all of his shares in the company, TVB said in an exchange filing. The change came after the broadcaster recorded its first annual loss in a decade in 2018.
– Yujing Liu


TVB soars on chairman’s resignation

Contemporary Amperex Technology (300750 SZ), China’s top lithium battery maker, soared by the daily 10 per cent limit to 133.82 yuan, a historical high, on Wednesday after the company said its 2019 net profit could climb by 20 per cent to 45 per cent from the year before. The expected profit growth was driven by rising demand for electric vehicle batteries over the past year, the company said in an exchange filing on Tuesday night.
– Yujing Liu


Battery maker soars on profit forecast

Airline stocks are likely to remain under pressure as confirmed cases of China coronavirus infection are set to increase, Jefferies analysts have said in a report.
  During the Sars outbreak in 2003, share prices of airlines bottomed two months after the WHO recognised the first case in late February, even though passenger traffic declined until June across China, according to the report.
  “We expect passenger yields [average fare per passenger per mile] to be under pressure if traffic declines,” analysts led by Andrew Lee said.
  Cathay Pacific Airways (0293 HK) suffered a 28 per cent decline in share price between February and April 2003, while China Eastern Airlines (0670 HK) fell 23 per cent. China Southern Airlines (1055 HK) tumbled by 30 per cent during the period.
  “Wuhan is primarily servicing domestic China flights. We estimate 88.8 per cent are domestic flights, based on seats, with China Southern Airlines having 30 per cent market share of total seats and only 20 per cent and 9 per cent for China Eastern Airlines and Air China.”
– Yujing Liu


Chinese airlines under pressure as virus spreads

Ping An Healthcare and Technology (1833 HK), China’s largest online medical platform, jumped 12.3 per cent to HK$75.25, on hopes the Wuhan coronavirus outbreak will spur new demand for online healthcare services. The company, better known as Ping An Good Doctor, operates a mobile app that allows its 289 million registered users to consult doctors remotely. Shares of the company are set to gain for a sixth straight session. They have soared by 32 per cent so far this year.
– Yujing Liu


Ping An Good Doctor shares soars on coronavirus outbreak

Investors are buying the dip after the huge plunge on Tuesday, as the market carefully gauges how big an impact the Wuhan coronavirus outbreak could have on the mainland China and Hong Kong economies, according to Castor Pang Wai-sun, head of research at Hong Kong-based brokerage Core Pacific-Yamaichi.
  “The 2.8 per cent plunge in the Hang Seng Index on Tuesday was indeed a bit too much, leading to some investors taking the chance to increase their positions,” Pang said.
  “The market is already expecting the virus will spread … the question is whether there will be bad news that escalates it to a whole new level to justify a significant fall in the market,” he said.
  Many investors are speculating on pharmaceutical and health care-related stocks, buying the shares as a short-term strategy. Whether the Hang Seng can stand firm above the 28,000-point level could be critical in deciding the market’s future direction, Pang said.
  The Hang Seng Index has widened gains to 1.3 per cent at 28,361.
– Yujing Liu


Hang Seng widens gains as investors buy the dip

Another risk Asian investors should keep an eye on this year is the US presidential election, according to Goldman Sachs.
  If the Democrats are to take the White House and both houses of Congress, the 2017 tax cuts in the United States are likely to be repealed, said Timothy Moe, the bank’s chief Asia-Pacific equity strategist. The S&P 500 Index is likely to decline and investors could potentially see an additional decline in valuations in US equities, Moe said.
  “That could give you a downside risk case for the S&P of 2,600, which would be about a 20 per cent correction,” Moe said. “I want to emphasise that’s not our forecast. Our forecast is 3,400, but there is a risk case that’s credible and that’s something we need to be mindful of from an Asian equity perspective.”
  Historically, Asian stocks decline when the US market falls 10 per cent or more, Moe said. 
  The S&P 500 declined 0.3 per cent to 3,320.79 on Tuesday.
– Chad Bray


US presidential elections pose possible risk to Asia equities: Goldman

The Shanghai Composite Index reversed early losses to close 0.3 per cent higher at 3,060.75. The Shenzhen Component gained 1.1 per cent and the ChiNext Index climbed by 1.4 per cent.
  Electronics manufacturers, computer-related stocks and telecommunications stocks led the advance. The technology sector has been on a powerful rally since the beginning of this year, driven by investors’ expectations that the semiconductor cycle has bottomed out, as well as growing demand for 5G networks.
  A gauge tracking 135 domestic semiconductor companies rose 2.7 per cent, according to data provider Xuangubao. A total of 12 stocks jumped by the daily 10 per cent limit, including Jiangsu Jiejie Microelectronics (300623 SZ), which has skyrocketed by 45 per cent this year.
  – Yujing Liu


China stocks recoup losses to close higher

The Hang Seng Index rose 1.3 per cent to 28,341.04 on Wednesday, recording its biggest daily gain in nine sessions. Blue-chip stocks increased broadly – gaming giant Tencent Holdings (700 HK) rebounded from heavy losses on Tuesday to rise 1.4 per cent.
– Yujing Liu


China markets are pushed up by tech shares, Hong Kong stocks have best day in nine sessions

Shanghai Composite Index reverses early losses to close 0.3 per cent higher at 3,060.75 Hang Seng Index rises 1.3 per cent to 28,341.04

Shanghai Composite Index reverses early losses to close 0.3 per cent higher at 3,060.75

Hang Seng Index rises 1.3 per cent to 28,341.04