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Georgina Lee

Srinivasan Iyer

Good day, traders
It was disappointing end to a holiday shortened trading week. The Hang Seng Index fell 0.5 per cent to 26,312.63 - its lowest since December 5. 
We'll be back on Monday to bring you live updates from Hong Kong and the mainland markets, where trading resumes after an extended Lunar New Year break to contain the spread of the coronavirus outbreak.
If you would like the Live Stocks Blog emailed to you each morning, click here. 
– Georgina Lee and Srinivasan Iyer 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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Hong Kong stock market

Hong Kong stocks fall to eight-week low as investors resort to profit-taking after early gains  

Bronze sculptures of bulls, the symbol of the Hong Kong stock exchange, at the Exchange Square in Central. Photo: Warton Li


Business

Markets



Only a handful of blue chips buck the trend


Prudential Brokerage sees further downside pressure next week




Proceedings in the Hong Kong were once again dominated by the China coronavirus outbreak, as shares fell for a third consecutive day.


Live

Overnight markets/what futures foretell
-- Overnight in US markets, both the S&P 500 and Nasdaq rose 0.3 per cent, while the Dow Jones Industrial Average gained 0.4 per cent   -- Hong Kong futures are up 0.21 per cent
IPO debuts: None
Economic statistics/central bank action: China manufacturing and non-manufacturing PMI for January
Corporate earnings: none to note
Good reads: The boss of the Hang Seng Index compiler says allowing tech giants to be included as index constituents as proposed in its ongoing consultation is vital to the index’s future. read full story here 


Morning guidance

Xin Point Holdings (1571 HK) has suspended operations at its factories in China, as the country continues to battle the deadly coronavirus outbreak.
The maker of electroplate products said in an exchange filing that it was extending the Lunar New Year holiday for its employees in a bid to contain the virus from spreading.
Operations will resume on February 10 and customers have been informed of potential delays in shipment of products.
“If the suspension needs to be extended in response to the development of the epidemic and relevant government policies, the company will make further announcements in due course,” Xin Point said.
-- Cheryl Arcibal


Overnight filing

Hong Kong stocks opened 1.2 per cent higher at 26,757.61
The Hang Seng Index has lost 5.4 per cent over the past two trading days in the holiday-shortened week. The gauge is poised to give up the 7 per cent gain recorded in December to end the month with a loss.
The turnaround in the index’s performance came as the China coronavirus outbreak started to quickly deteriorate before the Lunar New Year. The number of confirmed cases in China has since grown to 9,356 and 213 deaths have reported. In Hong Kong, confirmed cases rose to 12. With the number of confirmed cases globally nearing 10,000, the World Health Organisation has declared an international emergency over the coronavirus epidemic.
The main boost to the index came from Tencent (700 HK), which rose 3.5 per cent to HK$388. China Overseas Land & Investment (688 HK) jumped 6.5 per cent to HK$27, CNOOC (883 HK) surged 5 per cent to HK$12.6, while Mengniu Dairy (2319 HK) added 3.1 per cent to HK$29.95.
-- Georgina Lee


Hong Kong stocks open higher, led by Tencent

The GEM-listed China Health Group (8225 HK) surged 65 per cent to HK$3.48, with the gains for the week exceeding more than 28 times.
Investors continue to bid up selective drug makers amid the China coronavirus outbreak, which has infected more than 9,600 people on the mainland and claimed 213 lives.
On Wednesday, it said in a voluntary announcement to the exchange that Ritonavir, an antiretroviral drug widely used to treat HIV made by the company, is effective in fighting the novel coronavirus.
Beijing hospitals have started treating patients with a combination of the anti-HIV drugs Lopinavir and Ritonavir.
-- Georgina Lee


Gains in China Health Group continue

Offshore yuan firmed up this morning to 6.9774 per US dollar, strengthening 8 basis point from yesterday’s close of 6.9830. At one point yesterday it had weakened to 7.004 per, a level not seen since December 24, 2019.
The fall in the currency pair has come amid heightened global concerns about the spread of the China coronavirus, which has spread to nearly 10,000 people globally and claimed 210.
-- Georgina Lee


Offshore yuan regains strength

Trading in cosmetics retailer Bonjour Holdings (653 HK) was suspended this morning, after having resumed for just a day yesterday, when it shot up 24 per cent to HK$0.124.  
On Wednesday the company disclosed to the exchange that its substantial shareholder and executive director, Chen Jianwen, has been discussing with several other shareholders about buying their combined 40.4 per cent stake in the company.
Chen already owns 19.5 per cent in Bonjour. If his proposal is accepted, it could trigger a mandatory general offer for Chen to buy all the other shares of the company not already owned by him, as per the city’s securities law.
“The negotiation may or may not lead to an agreement or a transaction… and the discussions may or may not lead to a general offer,” the company said in the filing on Wednesday.
-- Georgina Lee


Trading in Bonjour Holdings suspended again

China’s factory activity cooled slightly in January, with the official purchasing managers’ index dropping to 50.0, the National Bureau of Statistics said on Friday.
The manufacturing PMI was steady at 50.2 for the last two months of 2019, having been at 49.3 in October.
Non-manufacturing PMI – a gauge of sentiment in the services and construction sectors – strengthened to 54.1 from 53.5 in December.
But the bureau warned that because the survey was conducted before January 20, “the impact of pneumonia caused by the new coronavirus has not yet (been) fully manifested”.  “Future trends will need further observation,” it added.
Read full story here


China’s manufacturing cools in January

Buying interest returned to exchange traded funds tracking mainland stock indices, which went south earlier this week amid the worsening China coronavirus outbreak.
Their gains come ahead of the A-share market reopening on Monday, and in line with the gains in the broader Hang Seng, which was up 0.7 per cent at 26,642.36 in the latest trading.
iShares A50 ETF (2823 HK) rose 1.2 per cent to HK$13.78, CSOP A50 ETF (2822 HK) added 1.2 per cent to HK$13.66, iShares A50 ETF (2823 HK) advanced 1.2 per cent to HK$13.78 and Harvest MSCI China A Index ETF (3118 HK) edged up 0.1 per cent to HK$14.06.
-- Georgina Lee


ETFs tracking China stock indices recoup losses

Short selling pressure on Alibaba Group Holding (9988 HK) has eased a bit. The latest data shows that during the afternoon trading session yesterday, short selling transactions represented about 9.7 per cent of its total turnover, down from 17.1 per cent and 22.8 per cent on January 29 and January 24, respectively.  
This morning, shares of the e-commerce giant had at one point dipped to a one-month low of HK$199.6, but soon recovered to trade 0.6 per cent higher at HK$203.
Vincent Kwan, chief executive of index compiler Hang Seng Indexes Company, said allowing tech giants to be included as index constituents as proposed in its ongoing consultation is vital to the index’s future. Many market participants are expecting Alibaba to be included.
Read full story here.
-- Georgina Lee


Short selling pressure eases on Alibaba

Sichuan Injet Electric plans to raise 533.2 million yuan via an IPO by issuing 15.84 million shares at 33.66 yuan per share.
The Sichuan-based electronics and equipment control maker expects the shares to be listed on February 4 on the Shenzhen Stock Exchange, according to the company’s announcement to the bourse today.
-- Iris Ouyang


Sichuan electronics firm plans Shenzhen IPO

Tracking movement

The US State Department issued a “do not travel” advisory for China on Friday after the World Health Organisation declared a public health emergency over the rapidly spreading Wuhan coronavirus. 
“Those currently in China should consider departing using commercial means,” the State Department said in an advisory on its website on Friday. “The Department of State has requested that all non-essential US government personnel defer travel to China in light of the novel coronavirus.”     The US Centers for Disease Control and Prevention has separately issued a travel warning that all nonessential travel to the mainland should be avoided.
The Hang Seng Index, which is dominated by mainland stocks, was mixed on Friday. The benchmark index rose 0.41 per cent in mid-morning trading giving back early gains in the session. 
The State Department warning came as several airlines, including British Airways and Lufthansa, had suspended direct flights to the mainland and others have severely reduced their flights to China.
Cathay Pacific (293 HK), Hong Kong’s flagship carrier, has cut its flights by more than half and several American carriers, including American Airlines, Delta Air Lines and United, have severely reduced their flights to China.
Asia-Pacific airline stocks have been under pressure in recent days as the viral outbreak, which is believed to have begun in Wuhan, has worsened. 
China Southern Airlines (1055 HK), the nation’s biggest carrier, has dropped by 19 per cent in Hong Kong in the past two weeks, while China Eastern Airlines (670.HK) has lost 16.6 per cent since January 17. Cathay Pacific, Hong Kong’s flagship carrier, has fallen by 11.6 per cent. However, shares of China Southern and Cathay Pacific were up on Friday as they recovered somewhat from recent lows.  
-- Chad Bray


“Do not travel” US advisory for China

While bulls expect gold to test US$1,700 per ounce this year, citing global central banks’ easing monetary stance and consequently low- or negative-yielding government bonds, analysts at Morningstar see the precious metal staying put at US$1,500.
“Over the next few years, we expect prices to fall to our real mid-cycle price of US$1,250 per ounce in today's dollars by 2022, which is roughly US$1,370 per ounce in nominal dollars,” Kristoffer Inton, Morningstar’s Chicago-based director of basic materials and equity research, wrote in a note.
“We think 2020 gold demand will be 8 per cent higher than it was in 2018, driven by stronger investment-related demand, mostly from ETFs and central banks. The current economic and interest-rate environment has fuelled a resurgence in investment demand for gold,” said Inton.
Gold, which has year-to-date returned 3.76 per cent, was last trading at US$1,572.34.
-- Georgina Lee


Morningstar’s call for gold this year is US$1,500

Losing altitude

The worsening Wuhan coronavirus outbreak is taking a heavy toll on airlines, gaming companies and hotel chains that have increasingly relied on the exponential growth of Chinese tourists and their spending power in recent years. It could still get worse, analysts said.
Read full story here


Impact of coronavirus outbreak could be harder than Sars, say analysts

The benchmark index gave up most of its gains since opening up this morning. It closed the morning session 0.2 per cent higher at 26,507.08.
Stocks that were hammered over the past two days saw some buying interest, as investors appeared to temporarily shrug off concerns of the coronavirus outbreak.
Macau casino operators Sands China (1928 HK) rose 1.5 per cent to HK$37.95 and Galaxy Entertainment (27 HK) added 1 per cent to HK$52.3. Hong Kong’s leading shopping mall owner Wharf REIC (1997 HK) gained 1.2 per cent to HK$41.15. Apple supplier AAC Technology (2018 HK) edged up 1.1 per cent to HK$56.
-- Georgina Lee


Gains in Hang Seng narrow by lunch break

China's financial system “may be less resilient” than it appears and some banks may require “sizable recapitalisation” following an analysis of the People’s Bank of China’s (PBOC) latest stress test of the country’s 30 biggest banks last year, according to S&P Global Ratings
Ming Tan, an S&P credit analyst, said the PBOC gained a “better handle” on China’s financial risks and adopted more realistic assumptions in its 2019 stress test scenario, including bigger increases in bank funding costs. 
“Chinese banks are more vulnerable to idiosyncratic risks, arising from governance related issues and risk management deficiency, than systemic ones,” Tan said in a research note.
The stress tests found that five of the 30 banks tested would fail to meet a 5 per cent common equity tier ratio, an important measure of a bank’s financial health; and seven would fail to meet a 6 per cent ratio level. 
-- Chad Bray


Chinese banks are vulnerable and may require ‘sizable recapitalisation’: S&P Global Ratings

The Hang Seng Index was unable to sustain the morning’s gains. The blue chip benchmark shed 0.2 per cent after the lunch break to trade at 26,405.26.
Selective Chinese banks and insurers fell. Ping An Insurance (2318 HK) lost 0.8 per cent to HK$89.25, China Life (2628 HK) shed 0.5 per cent to HK$19.06, ICBC (1398 HK) dipped 0.4 per cent to HK$5.25 and Bank of Communications (3328 HK) declined 0.4 per cent at HK$5.
-- Georgina Lee


Hang Seng Index heads south after lunch

Swire Pacific (19 HK) said in an announcement yesterday that it has appointed Zhang Zhuoping, as executive director, with effect from April 14. Zhang, 48, replaces Ivan Chu, the former chief executive of its substantially owned airline Cathay Pacific (293 HK), who has resigned. 
Zhang joined the Swire group in 2002 where he first worked in corporate finance. In 2005, he became the chief representative of John Swire & Sons (China) responsible for government relations and business development. He will replace Chu as chairman of John Swire & Sons (China). His annual salary will amount to HK$4.13 million and other performance related bonus.
Swire Pacific’s shares were 0.8 per cent lower at HK$69.35, while Cathay Pacific was up 2.7 per cent at HK$9.92.
-- Georgina Lee


Swire Pacific appoints new executive director

With the violent anti-government protests dragging the performance of many Hong Kong companies last year, MSCI Hong Kong’s annual returns of 10.34 per cent lagged that of MSCI China’s 23.66 per cent in 2019.
However, this year both markets have come under pressure from the coronavirus outbreak that originated in the central Chinese city of Wuhan. Companies in 14 mainland provinces and cities have said they resume business until at least the second week of February, according to Bloomberg.
Here’s a comparison of the two indexes daily percentage movement year-to-date:
 

-- Georgina Lee


Coronavirus outbreak a drag on MSCI HK and MSCI China 

With the Hang Seng Index wiping out the more than 300 points gain this morning and trading 0.4 per cent lower at 26,346.96, Alvin Cheung, associate director at Prudential Brokerage, says investors are still unsure about the coronavirus.
Infections from the virus continue to mount in China, which has forced more companies on the mainland to extend their Lunar New Year holiday up to mid-February, as authorities look to contain the bug.  
“You can see that selling pressure came once the index had risen during the morning session. To me that [means] a lot of investors are looking for the ‘emergency exit’ due to their gloomy outlook on the market performance next week,” said Cheung. “With such fleeting gains shown by the index today, this won’t give a lot of confidence to investors to get back into the market.”
-- Georgina Lee


Too soon for bargain hunting, says Prudential Brokerage

The Hang Seng Index fell to an eight-week low, with further downside looming if the coronavirus outbreak deteriorates.
The blue chip index reversed early gains, shedding 0.5 per cent to end at 26,312.63, the lowest since December 05. For the month, it lost 6.6 per cent, the most since August.
Weighing on the index were financials, as Ping An Insurance (2318 HK) lost 1.4 per cent to HK$88.7, insurer AIA (1299 HK) fell 0.7 per cent to HK$77.75 and China Construction Bank (939 HK) declined 0.8 per cent to HK$5.95.  
But the panic selling seen in the past two days eased today, with selective blue chips such as Sands China (1928 HK) rising 1.6 per cent to HK$38 and Shenzhou International (2313 HK) adding 1 per cent to HK$103.8.  
Still, further downside could be in store next week, as the Hang Seng could potentially sink further to a 2019 low of 24,900 seen in mid-August, when Hong Kong was hit by the double whammy of US-China trade war tensions and violent anti-government protests, said Alvin Cheung, associate director at Prudential Brokerage.
“Given the current market situation, cash is king. Fund managers are selling as they need to get prepared for higher redemption demand from investors in funds exposed to Hong Kong stocks,” said Cheung, referring to the impact on Hong Kong businesses caused by the virus outbreak. According to the latest update, there were nearly 10,000 confirmed cases and more than 200 deaths.
Cheung said that depending on the extent of the outbreak, the downside of 24,900 is possible if the contagion spreads and the number of fatalities continues to rise.
-- Georgina Lee


Hong Kong stocks end at lowest level in eight weeks

Hong Kong stocks fall to eight-week low as investors resort to profit-taking after early gains

Only a handful of blue chips buck the trend Prudential Brokerage sees further downside pressure next week

Only a handful of blue chips buck the trend

Prudential Brokerage sees further downside pressure next week