Double whammy with Chinese chip landings and consumer plays

Chinese technology stocks sold off Monday in Hong Kong, as they felt the impact of US restrictions on shipments of chips and high-end technology to China.

Hang Seng Tech is down 4.0% today, dragging the Hang Seng in the broader market down 3.0% at the close. Hong Kong stocks have already reached 11-year lows.

There have also been big losses for Chinese consumers playing games, with many Chinese cities returning to lockdown and movement restrictions again before a major political meeting begins next Sunday.

Consumer electronics supplier BYD Electronic International (BYDIY) HK:0285 fell 11.0%, the worst showing in the Hang Seng Tech index. It’s part of the Warren Buffett-backed electric car company BYDDY (HK: 1211), but makes technology components for smartphones, computers, smart cars and wired home appliances.

On Friday, the US Department of Commerce issued a A new set of rules Restrict the export of advanced computer chips to China and companies with chip factories in China. The measure is intended to cut off China’s supply of semiconductors that could be used in military applications or for supercomputers, to maintain any competitive advantage for the United States. It also restricts the supply of materials used in the manufacture of semiconductors and integrated circuits.

This is knocking Chinese companies that rely on foreign-made chip technology. The new rules apply not only to US companies, based on a set of restrictions already communicated to Nvidia (NVDA) and Advanced Micro Devices (AMD), but they also apply to any outside company that uses US technology.

Data center developer GDS Holdings (GDS) (HK: 9698) was next, down 10.0%.

The new US Department of Commerce rules come from its Bureau of Industry and Security. The bureau also added 31 Chinese companies including leading Chinese chip maker YMTC (full name Yangtze Memory Technologies Co.) to its list of “unverified” entities as it feels there is a “persistent lack of cooperation by a foreign government” preventing the government American verification of the “goodwill” of the company.

Action against unverified companies could escalate to their inclusion on the Entity List, a fate suffered by Chinese maker Huawei of mobile phones and communications systems in 2019. US companies cannot provide such companies without express permits and permits.

However, companies can also remove themselves from the “unverified” list if they cooperate in providing the information. The bureau also removed nine entities from the unverified list, including pharmaceutical company WuXi Biologics (WXXWY) (HK: 2269), which makes Covid-19 vaccine ingredients from AstraZeneca (AZN). However, today WuXi shares are down 2.5% in Hong Kong.

Feeling the technical fallout, online pharmacy and health clinic JD Health International (JDHIY) (HK: 6618) lost 9.6%, with Hua Hong Semiconductor (HHGGY) (HHGGY) (HK: 1347) down 9.4%.

China’s largest chip maker, SMIC HK:0981, saw its shares fall 4.0%. Tech analysts say the new US restrictions will really undermine and hamper China’s ambitions to develop a self-sufficient chip industry by 2030.

Nomura said it believes that SMIC and YMTC not listed, and another unlisted DRAM vendor, CXMT, cannot upgrade their technology nodes and cannot expand their existing capacity. “Consequently, we believe it will thwart China’s ambition to develop the semiconductor industry for a long time,” Asia technology analysts CW Chung and Jung Cho explain.

The prospects have not been good on the consumer front either, thanks to a spike in Covid-19 cases during the golden week. A highly transmissible B-7 Omicron variant has been detected in China’s Inner Mongolia province for the first time, and there is a possibility that travelers could spread Covid across the country.

Government figures showed domestic tourism revenue fell 26.2% year-on-year during the holiday, adding to the 22.8% decline during the long weekend of the Mid-Autumn Festival in September. While some cities have been easing restrictions, the general trend is towards tighter movement controls.

The capital of “Chinese Hawaii”, Hainan Island, went into complete lockdown on October 6, as the city of Haikou asked people to stay put and get tested for Covid. Hohhot, the capital of Inner Mongolia, has stopped allowing outside vehicles to enter, while the entire Xinjiang province has banned people from leaving.

Macau casino operator Sands China (SCHYY) (HK:1928) was the worst performer in Hang Seng broadly, down 9.1%, with little likelihood of Chinese gamblers making quick trips to the tables.

Covid restrictions will only be intensified before the 20th National Congress of the Communist Party of China, which begins next Sunday in Beijing. It’s a major meeting every five years that will decide the party’s leadership for the next half-decade — including the re-election of Chinese President Xi Jinping.

Other major losers included Athleertain brand Li Ning (LNNGY) (HK: 2331), down 8.8%, brewery China Resources Beer (CRHKY) (HK: 0291), down 7.6%, and hotpot restaurant chain Haidilao (HDALF). ) (Hong Kong: 6862). Online travel agency (TCOM) (HK:9961) slumped 6.9%.

Mainland markets saw a conscious return to work after the week-long holiday following China’s National Day on October 1. The CSI 300 index of the largest lists in Shanghai and Shenzhen fell 2.2%, although US technology stocks rose and returned to the same. Point as the last trading on the mainland before the break on Friday, September 30th.

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