Hong Kong & China Equities Head Lower As Corporate Earnings Miss

Hong Kong and China equities are lower today, with corporate earnings starting to be released. Elsewhere, Shimao Group has yet to move any closer to agreeing on restructuring terms with their creditors, Apple reports a drop in iPhone shipments in February, China EV maker BYD missed forecast profit, and China will look to take the US to the WTO over EV subsidies, while earlier China Industrial Profit rose to 10.2% Feb from -2.3% in Jan

• Hong Kong equities are lower today, with the HSTech Index as the worst performer down about 1%, although well off earlier lows. The Mainland Property Index has brushed off Shimao news to trade unchanged for the day, while the HSI is down 0.40%. In China, small-cap names are faring the worst, with the CSI1000 down 1.50% and down about 4% for the past week. ChiNext is down 1.50%, while large-cap CSI300 is down just 0.45%.
• China Northbound flows were 4.7billion yuan on Friday, with the 5-day average at -1.34billion, while the 20-day average sits at 2.24 billion yuan.
• In the property space, a key creditor group of Chinese developer Shimao Group Holdings Ltd. has yet to support any of the four options proposed by the company for restructuring its offshore debt, extending negotiations that have lasted over a year and a half. Despite Shimao's offerings, which include debt-to-notes swaps and zero-coupon mandatory convertible bonds, the final debt restructuring plan remains under discussion, reflecting the ongoing challenges faced by Chinese developers amidst the country's property-sector debt crisis.
• In February, Apple's iPhone shipments in China dropped by 33% compared to the previous year, reflecting a continuing decline in demand exacerbated by the resurgence of Huawei as a competitor and a broader slowdown in the Chinese smartphone market, leading analysts to anticipate further deterioration in iPhone sales throughout the year.
• BYD Co., China's EV leader, reported annual profit slightly below analyst expectations at 30.04 billion yuan, missing the forecast of 30.94 billion yuan. Despite overtaking Tesla as the world's largest electric car seller in Q4 2023, BYD faces challenges in maintaining this title due to seasonal sales fluctuations around the Lunar New Year holiday. The company aims to boost EV adoption through aggressive price cuts and expansion into the luxury market, amidst a competitive landscape where industry growth is expected to slow down for the second consecutive year.
• China has taken its disagreement with the US regarding electric vehicle subsidies to the World Trade Organization, arguing that elements of President Joe Biden's climate law passed in 2022 are discriminatory and have distorted the global EV supply chain. The complaint follows US restrictions on electric car tax credits and reflects escalating tensions over trade and geopolitics in the EV sector. Despite China's legal challenge, experts suggest the case may face hurdles and is unlikely to compel the US to alter its policies. China's nurturing of its domestic EV industry through subsidies and support, including exclusivity for local battery manufacturers in the past, further underscores the complexities of the dispute.