Asian blue chips sink 15% this year in market cap as trade war rages

Asian blue chips sink 15% this year in market cap as trade war rages

21 Dec 2018

TAIPEI/HONG KONG — Leading Asian stocks have lost 15% of their value since the end of 2017, with Chinese technology and financial players hit hardest by such headwinds as the Sino-American trade war.

Aggregate market capitalization for Nikkei’s Asia300 list of must-watch companies in the region fell $1.27 trillion to about $7.05 trillion as of Wednesday, with about 80% of companies losing ground.

Trade tensions and U.S. interest rate hikes are dampening investors’ growth expectations for such Chinese blue chips as internet giant Tencent Holdings. On the other hand, Tata Consultancy Services and other Indian corporations are emerging as new growth drivers.

Tencent shed about $125 billion in market value, the worst decline of any Asia300 company. Its quarterly net profit fell for the first time in 13 years in the April-June period as online gaming operations, its biggest earnings source, were hampered by the increasingly heavy hand of the Chinese government. Fears of a slowdown in domestic consumption amid the trade war also hindered Tencent as once-bullish investors began pulling away.

Tencent “registered strong operating results in our businesses and maintained healthy financial metrics” during the July-September quarter, CEO Pony Ma Huateng said in a November news release. But market players are casting a wary eye on prospects for the company’s mainstay gaming operations.

The decline in Tencent’s market value marks a major turnaround for a company whose grip on the Chinese consumer market made it seem until recently to be among the country’s most promising stocks. Tencent’s free messaging app WeChat boasts over 1 billion users, and China’s smartphone payment market is roughly split between Tencent’s WeChat Pay and rival Alibaba Group Holding’s Alipay.

Tencent and compatriots suffered nine of the 10 biggest declines among the Asia300 companies, the exception being South Korea’s Samsung Electronics in No. 2.

Tencent CEO Pony Ma Huateng and Alibaba Executive Chairman Jack Ma Yun attend an event marking the 40th anniversary of China’s reform and opening up at the Great Hall of the People in Beijing on Dec. 18. Their companies’ market capitalizations have shrunk 25% and 20%, respectively, so far this year. © Reuters
Alibaba, which suffered the third-biggest decline, saw net profit drop about 10% for the April-September half as food delivery service bled red ink. Alibaba CEO Daniel Zhang Yong nevertheless showed confidence, citing quarter-to-quarter growth of 25 million annual active customers on the e-commerce giant’s China retail marketplaces.

And the group is hastening to expand, undaunted by a falling stock price. It aims to bring small retailers throughout China, even in rural areas, into its online shopping ecosystem.

Industrial and Commercial Bank of China and China Life Insurance suffered the fourth- and fifth-worst declines. In sixth place was Ping An Insurance Group, followed by, the country’s No. 2 e-tailer. Kweichow Moutai, the biggest producer of baijiu distilled Chinese liquor, came in eighth, China Construction Bank ninth, and PetroChina 10th.

High-tech stocks that had been growth drivers face an increasingly cloudy outlook. Samsung lost about $110 billion in market value, with falling unit prices for semiconductor memory — its bread and butter — raising concerns over next fiscal year’s earnings. The company is also rapidly losing share in the Chinese smartphone market.

The world’s biggest contract electronics manufacturer, Taiwan-based Hon Hai Precision Industry, or Foxconn, lost about $23 billion in market value to suffer the 13th-worst decline. Demand for its assembly services lost steam on slumping sales of Apple’s iPhone. Its model of producing large volumes for the U.S. market at Chinese factories raised concern amid the trade war.

The Sino-American trade tensions could drag on for five to 10 years, Foxconn’s Chairman Terry Gou warned earlier this month.

Meanwhile, Indian companies staged the Asia300’s five biggest market cap increases, supplanting Chinese peers as growth leaders in Asian equities.

Top market cap gainer Tata Consultancy Services added about $24 billion. In second place was conglomerate Reliance Industries, followed by daily goods company Hindustan Unilever, information technology services provider Infosys and Housing Development Finance Corp.

TCS and Infosys offer IT services using a deep bench of talented Indian engineers, seizing on robust demand for IT investment from global businesses including European and American financial firms.

TCS should be able to maintain double-digit growth this fiscal year thanks to growth in fields in which it has strategically invested, according to CEO Rajesh Gopinathan.

Reliance has enjoyed increasing demand for goods like polyester fibers and petrochemicals as the domestic economy grows. Its mobile phone operations under the Reliance Jio brand are also gaining market share. An expansion in market value for consumer-oriented companies like Hindustan Unilever and food products giant Nestle India stood in contrast to China.