Chinese tech stocks sold off on Monday in Hong Kong, feeling the impact of U.S. curbs on chip and high-end tech shipments into China.
The Hang Seng Tech Index shed 4.0% today, dragging the broader-market Hang Seng Index down 3.0% by the close. Hong Kong stocks are already at 11-year lows.
There were also large losses for Chinese consumer plays, with various Chinese cities shifting back into lockdown and movement restrictions again ahead of the start of a key political meeting this coming Sunday.
Consumer-electronics supplier BYD Electronic International (BYDIY) (HK:0285) plunged 11.0%, the worst showing in the Hang Seng Tech Index. It is a spinoff out of the electric-car company BYD (BYDDY) (HK:1211) that's backed by Warren Buffett, but makes tech components for smartphones, computers, smartcars and wired home appliances.
The U.S. Commerce Department on Friday issued a new set of rules restricting the export of advanced computer chips to China, and to companies with chip factories in China. The action aims to cut off the supply of semiconductors to China that could be used in military applications or for supercomputers, to preserve any U.S. competitive edge. It also restricts the supply of materials used to make semiconductors and integrated circuits.
That is knocking Chinese companies that rely on foreign-made chip technology. The new rules apply not only to U.S. companies, building on a set of restrictions already communicated to Nvidia (NVDA) and Advanced Micro Devices (AMD) , but also apply to any overseas company using U.S. technology.
Data-center developer GDS Holdings (GDS) (HK:9698) suffered next-most, shedding 10.0%.
The new U.S. Commerce Department rules come from its Bureau of Industry and Security. The bureau also added 31 Chinese companies including leading Chinese chipmaker YMTC (full name Yangtze Memory Technologies Co.) to its list of "unverified" entities where it feels there is a "sustained lack of cooperation by a foreign government" preventing the U.S. government from verifying the "bona fides" of a company.
The action against unverified companies can escalate into their inclusion on the "entity list," a fate suffered by the Chinese mobile-phone and telecom-systems maker Huawei in 2019. U.S. companies can't supply such companies without express permits and permission.
However, companies can also get themselves removed from the "unverified" list if they do cooperate on providing information. The bureau also removed nine entities from the unverified list, including the drugmaker WuXi Biologics (WXXWY) (HK:2269), which makes ingredients for the Covid-19 vaccine from AstraZeneca (AZN) . Nevertheless, WuXi shares fell 2.5% today in Hong Kong.
Feeling the tech fallout, the online pharmacy and health clinic JD Health International (JDHIY) (HK:6618) lost 9.6%, with chip foundry operator Hua Hong Semiconductor (HHGGY) (HK:1347) not far behind, falling 9.4%.
China's largest chipmaker, SMIC (HK:0981), saw its shares fall 4.0%. Tech analysts say the new U.S. restrictions will really bite, and set back China's ambitions to develop a self-sufficient chipmaking industry by 2030.
Nomura said it believes SMIC, unlisted YMTC and another unlisted DRAM supplier, CXMT, cannot upgrade their tech nodes and cannot expand their current capacity. "Thus, we believe it will thwart China's ambition to grow its semiconductor industry for quite a while," Asia tech analysts C.W. Chung and Jung Cho explain.
The prospects weren't pretty on the consumer front, either, thanks to a rise in Covid-19 cases during the Golden Week. The highly transmissible B-7 Omicron variant was detected in the Chinese province of Inner Mongolia for the first time, and there's the prospect that travelers could further spread Covid nationwide.
Domestic tourism revenue fell 26.2% year-on-year over the holiday, government figures show, steepening the 22.8% decline seen during the Mid-Autumn Festival long weekend in September. While some cities have been relaxing restrictions, the general direction is toward tougher movement controls.
The capital of the "Chinese Hawaii," Hainan Island, entered a full lockdown on October 6, with the city of Haikou requiring people to stay in place and be tested for Covid. Hohhot, the capital city of Inner Mongolia, stopped allowing outside cars in, while the entire Xinjiang province has banned people from leaving.
Macau casino operator Sands China (SCHYY) (HK:1928) was the worst performer in the broad Hang Seng, down 9.1%, with scant prospect of Chinese gamblers making quick trips to the tables.
The Covid restrictions will only ramp up ahead of the 20th National Congress of the Chinese Communist Party, which starts this coming Sunday in Beijing. It's a key once-in-five-years meeting that will settle the party's leadership for the next half decade -- including the reelection of Chinese President Xi Jinping.
Other major decliners include athleisure brand Li Ning (LNNGY) (HK:2331), down 8.8%, brewery China Resources Beer (CRHKY) (HK:0291), down 7.6%, and the hotpot restaurant chain Haidilao (HDALF) (HK:6862). The online travel agency Trip.com (TCOM) (HK:9961) shed 6.9%.
Mainland markets had a sobering return to action after the week-long holiday following China's National Day on October 1. The CSI 300 index of the largest listings in Shanghai and Shenzhen fell 2.2%, although U.S. tech stocks have rallied and returned to much the same point as the last mainland trading before the break on Friday, September 30.
