Hong Kong stocks end week lower after SMIC and CNOOC decline following US blacklisting

Iris Ouyang
·4-min read

Hong Kong stocks ended the week lower after the Trump administration added four more Chinese companies, including SMIC and CNOOC, to a blacklist on Thursday. China stocks, on the other hand, were in a “soft bull cycle” and recorded a third week of gains.

The Hang Seng Index rose 0.4 per cent to 26,835.92 on Friday, but fell 0.2 per cent for the whole week. The Shanghai Composite Index rose by 0.07 per cent to 3,444.58, gaining 1.1 per cent for the whole week. The gauge has now risen for three continuous weeks.

The US department of defence on Thursday designated another four Chinese companies as owned or controlled by the country’s military, taking the total number of such blacklisted firms to 35. A recent executive order by President Donald Trump will prevent US investors from buying securities of these companies starting late next year. In a rare public warning, the US’s director of national intelligence, John Ratcliffe, said overnight that China posed the greatest threat to America.

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The impact of the blacklisting will be limited, said Alan Li, portfolio manager at Atta Capital in Hong Kong. “Market sentiment is still trending positive … although the names of the four companies were confirmed on Thursday, the news had already been digested by the market this week,” he said.

SMIC shed 5.4 per cent to HK$21, after it resumed trading in the afternoon on Friday. CNOOC led the declines among blue chips on the Hang Seng Index with a 3.9 per cent drop to HK$7.40.

Trade in SMIC’s shares was suspended in the morning. In the afternoon, the semiconductor maker refuted Washington’s claim that it was a military firm in an exchange filing. “The company’s services and products are all for civilian and commercial end uses, and are not involved in any military application,” it said, adding that it “strongly” opposed the US’s decision, which reflected a “fundamental misunderstanding” about the end use of its business and technology.

American investors will now not be allowed to buy its stock for 60 days starting Friday, and will no longer be able to deal in the securities after 365 days, the company said.

CNOOC, meanwhile, said it was assessing the impact of the situation and would closely monitor developments.

Investors were weighing the ongoing tensions between the United States and China against recent developments on the Covid-19 vaccine front. Vaccine transport and distribution could be an area of concern – Pfizer was facing a supply-chain bottleneck and last month slashed an initial plan to roll out 100 million vaccines by half, The Wall Street Journal reported.

The approval of some vaccines has improved the chances for an overall global economic recovery, said Li Daxiao, chief economist at Yingda Securities. “A shares are in a soft bull cycle since the rally in July. The drop on Thursday and Wednesday was more of a readjustment after big gains,” he said.

The Hang Seng Index will fluctuate between 26,500 and 27,000 in the next one to two weeks, Li said. “People in the coming half a year will tend to increase their bets on stocks that will rebound after the pandemic,” he added.

On Friday, consumer stocks led the gains among blue chips in Hong Kong. Mengniu Dairy rose 6 per cent. Alibaba Group Holding, which owns this newspaper, rose 2.6 per cent.

Property developers were among the biggest losers. New World Development declined by 2.6 per cent.

Shares of Next Digital, which publishes the Apple Daily newspaper, surged by about 20 per cent to HK$0.28 on Friday. The rise came after founder Jimmy Lai Chee-ying and two other senior executives were charged with fraud on Wednesday.

On the mainland, liquor and beer stocks led the gains. Chongqing Brewery surged by the daily cap of 10 per cent. Kweichow Moutai, the world’s most valuable liquor stock, added 2.5 per cent to 1,793.11 yuan.

Financial stocks dented some of the gains after Chinese regulators issued a guidance to important banks. The guidance will help these banks lower systemic risk, improve internal controls and prevent risk of failure. While Xiamen Bank plunged by 10 per cent, Postal Savings Bank of China fell 2.3 per cent in Shanghai and 1.1 per cent in Hong Kong.

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