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Xie Yu

Deb Price

Good day, traders, and welcome to a fresh month.
China markets ended ahead, but the Hang Seng slipped amid a new round of tariffs and protests that disrupted airport and MTR service in Hong Kong.
Catch up on the day's action below.
If you have feedback or questions, please shoot them to deb.price@scmp.com
-- Xie Yu and Deb Price in Hong Kong 
 
 


Stocks Blog: MTR shares tumble after weekend vandalism by protesters; China stocks rise on improved trade sentiment

Protesters vandalised Tung Chung MTR station on Sunday after retreating from the Hong Kong International Airport. Photo:  Edmond So

Business

Markets

China Evergrande is having a terrible year -- its shares are down about 30 per cent
MTR shares have fallen about 21 per cent in six weeks, as violence has grown


MTR shares have fallen about 21 per cent in six weeks, as violence has grown.


Stocks

China stock market

Hong Kong Stock Exchange

Hang Seng Index

Live

Bank of Jinzhou (HK 416) reported a first-half net loss of 868.4 million yuan. That was a reversal from a net profit of 4.4 billion yuan a year ago. This came despite a 40 per cent rise in operating income, to 13.5 billion yuan, from 9.7 billion yuan a year ago, it said in an exchange filing Sunday night.

Net interest income rose 33.4 per cent to 11.8 billion yuan. Its net interest margin, a gauge of banks’ profitability calculated by dividing a bank’s net interest income by its average interest-earning assets, improved to 2.93 per cent as of June, up from 2.51 per cent. Its non-performing loan ratio rose to 6.88 per cent, from 4.99 per cent.
During the period, its impairment losses on assets went up over five times, to 12.8 billion yuan, partly due to credit loss from loans extended to customers.
-- Georgina Lee
 


Bank of Jinzhou 1H sinks into net loss

Lippo China Resources (156 HK) said that its non-wholly owned unit has reached an agreement to sell the entire issued shares of FJM, which runs food courts in Singapore and Malaysia, to a unit of Singapore-listed BreadTalk for S$80 million (HK$452 million) in cash. 
Lippo China Resources is an indirect subsidiary of Lippo Ltd. (226 HK). The two companies will despatch a circular to their shareholders for their approval on the deal. It is subject to a certain waiver from the Hong Kong stock exchange, it said in its exchange filing Sunday.
BreadTalk and its subsidiaries operate food courts under the “Food Republic” and “Food Opera” brands in Singapore, Malaysia, China, Hong Kong, Taiwan, Cambodia and Thailand.
“The disposal is expected to give rise to a non-recurring gain attributable to the Lippo China Resources group of approximately HK$95 million,” it said, which will partly be used to repay its debt.
For the year ended December 2018, FJM had a net loss of S$219,000, reversing its net profit of S$3.08  million a year before. Lippo China Resources cited keen competition and rising costs as reasons for the disposal.
 
-- Georgina Lee 
 


Lippo China Resources to sell food court business to Singapore-listed BreadTalk for S$80 million

China will maintain “reasonably ample” liquidity and “reasonable growth” in aggregate financing as it implements a prudent monetary policy, the State Council’s financial stability and development committee said Friday night.
The meeting was chaired by Vice Premier Liu He.
Various risks are “controllable” overall, according to a statement published after the meeting. It also said China would encourage banks to replenish capital using more innovative tools and improve support of the real economy, especially through help for smaller companies.
-- Xie Yu  
 


China to maintain 'reasonably ample' liquidity and 'reasonable growth'

Here's what we are watching this morning:
Overnight markets/ What futures foretell
--The S&P 500 rose 0.06 per cent, the Nasdaq slipped 0.13 per cent and the Dow Jones Industrial Average rose 0.16 per cent.
-- The Hang Send Index futures opens 0.82 per cent lower at 25,400. FTSE A50 opens 0.02 per cent higher at 13,545.
IPO debuts:
None 
Economic statistics/Central Bank action:
-- Caixin manufacturing PMI
Earnings: No major earnings

Good reads: Stocks reporter Louise Moon looks at how the new tariffs that went into effect Sunday affect China and Hong Kong stocks. Stocks reporter Yujing Liu looks at the challenges ahead for Fuyao Glass, the subject of the documentary American Factory.
 


Morning guidance 

Investors, watch out: new tariffs that kicked in on Sunday will hit Chinese companies that export things like furniture and smartphone components, as well as exporters of pork from the US like Hong Kong-listed WH Group (288 HK).
Manufacturing stocks that will feel the sting include furniture maker Man Wah Holdings (1999 HK), analysts say, while technology stocks that could feel the latest tariff punch include Sunny Optical  (2382 HK), ZTE (763 HK) and ASM Pacific Technology (522 HK).
The new tariffs will add to pressure already felt by WH Group, the world’s largest pork producer, due to African swine fever, according to analysts.
“At each round of escalation in the US-China trade war, whether that is new retaliatory tariffs or new sanctions proposals … investors are growing more and more uncertain. There does not appear to be an off ramp to this path of continued escalation,” said Hannah Anderson, global market strategist at J.P. Morgan Asset Management, adding that negotiations are unlikely to see much progress as both sides keep hardening their views.
Read full story by stocks reporter Louise Moon here.
 


Tariffs will hit Chinese companies that export things like furniture, smartphone components

Chinese builders – already struggling with a stagnant housing market and several rounds of tightening credit control measures – now have to deal with a falling yuan amid increasing offshore debt.
The yuan weakened by 3.84 per cent in August, the biggest monthly loss since January 1994. It also broke through the key level of 7 yuan per US dollar, after US President Donald Trump announced that he would slap import tariffs of 15 per cent on an additional tranche of goods that will ultimately cover a further US$300 billion of Chinese goods exported to the US later this year.
According to ratings agency Moody’s Investors Service, foreign currency debt now accounts for a quarter of Chinese developers’ total debt, up from 20 per cent at the end of June 2018. Besides, builders are also finding it difficult to the tap the offshore debt market because of the additional curbs.
Nine out of the 10 top builders on the mainland have reported a surge in their debts as seen from their first-half earnings statements. They reported a higher net gearing ratio (net debt over total equity) – which shows the company’s ability to repay loans.
The pack was led by billionaire Xu Jiayin’s China Evergrande, which had 813 billion yuan (US$113.6 billion) in outstanding loans, according to the company’s latest interim results.
Read full story by Pearl Liu here.
 


Chinese builders pressured by weakening yuan, increased offshore debt 

Hang Seng Index opens 0.6 per cent lower, at 25,573.7,
Meanwhile, the Shanghai Composite Index is up a hair,  by 0.2 per cent, to 2,892 points.
-- Xie Yu 


Hang Seng opens slightly down, while Shanghai is a bit up 

Cathay Pacific (293 HK) is trading down by 1.8 per cent at HK$10.04 after protesters blocked access routes to Hong Kong's international airport on Sunday, causing airlines to delay and cancel flights. 
Cathay has found itself is the spotlight during the protests, as it has tried to navigate the demands of Beijing and the actions of its employees who have participated -- or continue to participate -- in the protests.
 

-- Deb Price 


Cathay Pacific shares fall on latest disruptions at airport 

Huaneng Renewables (958 HK) shot up by 20 per cent after the market opened to HK$2.6.
The company announced a plan to go private this morning.
On August 29, China Huaneng Group, the controlling shareholder of the company, said it would make a conditional voluntary cash general offer for all the H shares.
Shares were suspended from trading on Friday morning and resumed trading this morning.
It posted a better-than-expected 31.7 per cent rise in net profit to 3.09 billion yuan in the year's first half last Tuesday, due to better than anticipated cost control, according to Daiwa Capital Markets' analysts.
It is now trading up 16.1 per cent at HK$2.52.
-- Xie Yu and Eric Ng 


Huaneng Renewables shoots up on news it will go private 

The Caixin China Manufacturing Purchasing Managers Index (PMI) index bounced back to a expansion territory to 50.4.
The number is up by 0.5 percentage points from July, also the highest since April, indicating a slight improvement of manufacturing sentiment.
-- Xie Yu 


Caixin PMI bounces back into expansion territory 

Mainland Headwear Holdings (1100 HK) will transfer its whole retail operation in China to Sanrio and completely exit the retail market, it announced today.
The manufacturer of headwear and accessories will sell Shanghai CYF, which runs under the names Vivitix and Giftgate in China.
Its goods are mainly sold to the United States and Europe.
The company will sell the entire equity of the company to Sanrio at 576,000 yuan (US$80,000).
The losses of the Hong Kong-headquartered company have grown in recent years due to “changes in the Chinese market,” said Mainland Headwear, a US$53-million company with factories in Shenzhen and Bangladesh.
Its stock price dropped about 1 per cent to HK$1.03 on the Hong Kong stock exchange.
The company will shift its resources toward its manufacturing plants in Bangladesh.
“The new factory is expected to start production by the end of this year, which will support the expanding manufacturing business with further enlarged production capacity,” said Pauline Ngan Po-ling, deputy chairman and managing director of Mainland Headwear.
-- Holly Chik


Mainland Headwear Holdings to sell Shanghai CYF

Can September snap the two back-to-back months of losses for the Hang Seng Index?
It's having a weak start on the first day of trading in the new month. It is down 0.36 per cent at 25,632.26.
Here's where we stand:
 

-- Deb Price


Chart: Hang Seng's monthly performance this year

All the major indexes in China are trading up.
The benchmark Shanghai Composite Index is up by 0.8 per cent to 2,909.
The Nasdaq style ChiNext index is up by 1.1 per cent to 1,629.07. Shenzhen Component Index is up by 1.1 per cent to 9,466.3.
Stocks in such sectors as aviation, ship building and defense equipment are leading the rally.
Trade talks, global easing, domestic policies and corporate earnings may bring some positive factors to the stock market in September, and improved sentiment may introduce fresh capital into the stock market, said a note by strategists with Citic Securities, issued today.
-- Xie Yu


China stocks trading up 

Traders may be seeing the latest positive Caixin PMI data "as a temporary green blip," said Stephen Innes, APAC market strategist with AxiTrader in Singapore, especially with virtually every forward-looking indicator pointing to contraction, and given that new export orders contracted at the fastest pace since November 2018.
"Front loading of exports to the US ahead of higher tariffs has supported trade and overall activity growth in the first couple of months this year. However, this effect is expected to fade in the months ahead," he said in a note shared this morning.
With downward momentum on growth extending, it should open the door more policy easing during the rest of this year.
After selling off at the open on the back of the new US tariffs levied at China, risk assets are stabilizing, as the markets had pretty much baked the announcement into the cake, he said.
-- Xie Yu


Latest Caixin PMI seen as a 'temporary green blip,' strategist says

Shares of Yanzhou Coal Mining (1171 HK), the listed flagship of Shandong province-based state-backed energy major Yankuang Group, surged as much as 17.2 per cent today.
The surge came after it unveiled late on Friday a better than expected 25.7 per cent year-on-year rise in net profit to 5.81 billion yuan for the year's first half, and declared a special dividend of 1 yuan per share.
The profit growth was driven by a 4.7 per cent rise in average coal selling price and the non-recurrence of 1 billion yuan of staff social insurance premium charged in last year's first-half. It was higher than the 4.39 billion yuan estimated by Jefferies Securities analyst Laban Yu and amounted to 75 per cent of the average estimate of 7.72 billion yuan of 12 analysts in a Bloomberg poll for the whole of this year.  
The stock is trading up by 15.2 per cent higher at HK$7.82.
-- Eric Ng


Yangzhou Coal Mining surges on stellar rise in net profit

Listed companies on China's Shenzhen bourse have together seen a 0.9 per cent decrease in net profit, on top of a 9.4 per cent increase in total revenue for the first 6 months this year, according to a review of interim performance put up by the Shenzhen Stock Exchange on Sunday night.
A total of 2,178 companies listed in Shenzhen reported total revenue worth 59.5 billion yuan (US$8.3 billion), a year-on-year increase of 9.4 per cent, and a total net profit of 408 billion yuan, a slight decrease of 0.9 per cent.
A total of 1,892 companies in Shenzhen City achieved profitability, taking up 87 per cent of the listed entities.
On the other hand, 1,490 Shanghai main board companies reported a 10 per cent year-on-year revenue growth to 17.5 trillion yuan, pushing net profit to rise by 9 per cent from last year to 1.7 trillion yuan.
Ninety per cent, or 1,330 companies on the Shanghai main board, reported profits.
-- Xie Yu


Most Shanghai-listed companies reported 1H profits, exchange says  

The Shanghai Composite Index closed at the lunch break 1.1 per cent higher to 2,926.1.
-- Xie Yu


Shanghai up 1.1 per cent at lunch break

Shares of MTR (66 HK) are trading down about 3 per cent to HK$44.05, the biggest intra-day fall in nearly three weeks, as violent protest activities led to a shutdown of the Tung Chung line.
Protesters vandalised Tung Chung station, smashing up the control room, dismantling CCTV cameras, jamming turnstiles so they could get in without paying, hacking at fire hoses to bring water gushing out and spray-painting graffiti, SCMP reporters wrote. 
The share price of the owner and operator of the city's subway system -- the Mass Transit Railway -- has fallen sharply as protest activities have gotten more violent, with no end in sight. 
From its high on July 18, at HK$55.70 to its intra-day level of HK$44.05, the stock price has fallen about 21 percent. 
 

-- Deb Price 
 


MTR shares tumble after protesters vandalise Tung Chung station, leading line to be shut down on Sunday

The Hang Seng Index closed at lunch break at 25,602.6, down by 0.5 per cent.
-- Xie Yu


Hang Seng down 0.5 per cent at lunch break

Mainland investors are not feeling despair or pessimism about the relationship between the world’s two biggest economies because trade talks are still going on and making progress, said associate director of Eddid Securities and Futures Ryan Chan.
“Investors understand that although both sides are showing a tough and adamant stance, it is only a strategy and attitude for negotiations,” said the analyst.
China and the United States are still discussing whether a Chinese trade delegation will travel to Washington this month for the next round of negotiations, China’s commerce ministry spokesman Gao Feng said on Thursday.
The SZSE Component Index, SSE Composite Index and Chinext Price Index all went up by at least 1 per cent after more tariffs between China and the United States took effect on Sunday.
-- Holly Chik


Mainland investors not feeling negative about trade war, says analyst Ryan Chan

Shares of ENN Energy Holdings (2688 HK), one of China's largest natural gas distributors, plunged as much as 12.2 per cent after it said late on Friday its chairman and controlling shareholder Wang Yusuo plans a restructuring of his businesses.
Wang-controlled ENN Group International Investment and its wholly-owned Essential Investment Holding plan to sell all of their combined 32.83 per cent stake in ENN Energy to Shanghai-listed ENN Ecological Holdings, also under Wang's control.
The proposed sale is at a preliminary stage.
ENN Ecological is engaged in liquefied natural gas production and sales, methanol manufacturing, coal mining and trading and pharmaceutical ingredients production.
ENN Ecological last month posted a 25.3 per cent year-on-year rise in net profit to 884.6 million yuan for the year's first half, while ENN Energy reported a 88.7 per cent jump in first-half net profit to 3.36 billion yuan. 
ENN Energy was 6.6 per cent lower at HK$83.55 at the lunch break.
-- Eric Ng 


ENN Energy Holdings plunges after chairman announces restructuring

Retailers and manufacturers of jewellery, watches and clocks are leading the fall of stocks in Hong Kong in the afternoon, as the protracted protest in the city keeps dragging down retail performance, driving away tourists and shoppers from the Chinese mainland and the rest of the world.
Hengdeli Holdings (3389 HK), which sells watches, saw its share price tumble by 3.8 per cent to 38 HK cents. Chow Sang Sang Holdings International (0116 HK), the retailer and manufacturer of gold and gem-set jewelry products, slid by 1.6 per cent to HK$8.83. The company has lost 26 per cent from a recent high at HK$11.9 in mid July.
Hotels, restaurants and other leisure service providers are also suffering from losses.
Here's a feature on how the first 79 days of the current protests caused much more damage to Hong Kong's economy than the Occupy Central movement did in that time. 
-- Xie Yu 


Shares of retailers fall as protests drag on, driving away mainland shoppers

Transactions of land plots of 300 cities in China cooled in August, according to data compiled by the China Index Academy.
The total supply of land plots for residential projects declined by 20 per cent based on space year on year, leading to a decline in total turnover, despite a mild rise in average price.
The city of Nanjing, capital of east China's Jiangsu province, recorded the highest turnover from land sales, worth 13.8 billion yuan (US$1.9 billion), followed by Hangzhou, capital city of the neighboring Zhejiang province with turnover worth 17.3 billion yuan.
Mainland developer China Evergrande (3333 HK) is trading 1 per cent higher in Hong Kong at HK$16.4. Country Garden (2007 HK) is also trading 0.9 per cent higher at HK$9.8.
-- Xie Yu


Land plot transactions in mainland cool in August

The Shanghai Composite Index is up about 17 per cent this year, despite four months with losses.
It's off to a solid start on the first day of September. It is up 1.4 per cent, at 2,926 points.

-- Deb Price


Chart: Shanghai Composite Index monthly performance

Investors continued pouring money into tech companies in China's A-share market this afternoon.
Zhejiang Dahua Technology (002236 CH) climbed 2.9 per cent to 16.5 yuan. Hangzhou Hikvision (002415 CH) added 2.3 per cent to 31.6 yuan.
The two companies, both strong in smart surveillance technology, are on a US watch list for possible sanctions, Bloomberg reported in May.
Other tech chips also rallied. Shenzhen Dvision  (300167 CH) surged by 10 per cent, the daily limit up, after it reported better-than-expected earnings for the first 6 months. In the first half periods of the two previous years, it had reported losses.
-- Xie Yu


Investors buying China tech stocks

Shenzhen Rongda Photosnitv and Tech (300576 CH) said it has "received consultation from South Korean companies" for procurement of photoresist materials. The company's current photoresist products are mainly sold on the Chinese domestic market, the company said when interacting with its investors on an online platform under the Shenzhen Stock Exchange.
Rongda shares are trading 4.6 per cent higher at 19.46 yuan in Shenzhen.
Japan in July announced curbs on exports of high-tech materials to South Korea, including photoresists and hydrogen fluoride, which are crucial to producing semiconductors in Korea. That pushed Korea to look for replacements.
-- Xie Yu


Shenzhen Rongda Photosnitv and Tech jumps on possible opening in South Korea market

The Shanghai Composite Index added 1.3 per cent to close at 2,924.1, bolstered by shares in the aviation, technology development, media and communications sectors.
The Nasdaq style ChiNext index shot up by 2.6 per cent to 1,652.3, with 29 companies hitting their daily 10 per cent limit.
The Shenzhen Component Index rose 2.2 per cent to 9,569.5.
-- Xie Yu


China stocks gain

China Evergrande (3333 HK) is having a very bad year. Its shares have plunged about 30 per cent this year.
Last Wednesday, it reported grim first half results: Its net revenue was 227 billion yuan revenue, which was a year-on-year drop of 24.4 per cent. Meanwhile, its net income was 27 billion yuan, a decline of 49 per cent year-on-year. 
China's third-largest developer by sales has struggled amid property curbs aimed at cooling off home prices. It is being weighed down as well by its move into electric cars.
The company's debt has surged to 813.17 billion yuan, and it is the most heavily indebted of China's developers. Despite its mound of debt, it continues to burn through money in new businesses like its electric cars division. It said that it will invest another 6 billion yuan in the next six months in its EV business after spending 14 billion yuan in total on it in the first half.
The weakness in the yuan will make its offshore debt woes even worse. (Read full story here about Chinese builders' debt problems and the weakening yuan.)
It is trading up today by 1.4 per cent to HK$16.46. 

 
-- Deb Price and Pearl Liu 
 


China Evergrande's bad year -- shares are down about 30 per cent 

The stronger-than-expected Caixin PMI reading resulted from front-loading activities to avoid additional tariffs by the US government, as well as more intense production by factories before they shut down for China's National Day holiday on October 1, analysts from Goldman Sachs analysts contend. 
"Our analysis suggests that (official National Bureau of Statistics) manufacturing PMI in general has a higher correlation with industrial production growth, compared with the Caixin manufacturing PMI... The Caixin manufacturing PMI appeared to be more closely correlated with concurrent export growth," said a research note issued this afternoon.
"We continue to expect incrementally more policy support to economic growth in the rest of the year, as both trade front-loading and production front-loading (ahead of shutdowns) could fade in coming months," it said.
-- Xie Yu


Caixin strong PMI reading reflects front-loading to avoid tariffs, extra pre-holiday activity, Goldman Sachs says 

TCL Electronics (01070 CH) is trading 6.4 per cent higher at HK$3.7 in Hong Kong.
The company reported a 138.1 per cent jump in profit attributed to owners year on year for the first six months, to reach HK$1.4 billion.
A one-off gain worth HK$787 million was included due to fair value remeasurement of pre-existing equity interest in a firm held by the company.
-- Xie Yu


TCL Electronics jumps on big surge in profit

The Hang Seng Index pared some losses in the afternoon and closed 0.4 per cent lower at 25,626.6.
-- Xie Yu


Hang Seng closes down 0.4 per cent 

Hong Kong investors are starting to feel numb about the city's political environment.
“If no major or terrifying incidents break out in the social movement, such as death, there won’t be pressure to dramatically drive the market down,” said Ken Lo Chi-ming, a veteran stock watcher who was an analyst with Grand Finance Group. 
He doesn't expect the Hang Seng Index to fall below 24,900 in September because of the strong performance of mainland stocks.
-- Holly Chik 


Hong Kong investors are becoming numb to protests, says stock analyst

Business events were postponed and cancelled today due to the unrest in the city.
Over the weekend, protesters disrupted traffic at the airport and vandalised Tung Chung MTR station. On Saturday, an illegal march on Hong Kong Island descended into pitched battles with riot police who used tear gas and water cannons.
After the violence on Sunday, when protesters vandalised MTR stations across the city, the rail operator said services would run as normal today.
DWS, the Deutsche Bank asset management arm, has rescheduled its fourth quarter outlook that was originally set to take place this afternoon.
Credit rating agency Fitch cancelled a media briefing on environmental, social and governmental risks scheduled for this afternoon.
“Apologies that we have to cancel this media briefing. Very sorry for the last minute cancellation,” a spokesperson for Fitch said in an email on Sunday night.
-- Martin Choi
