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Nikkei Markets

Heavyweights drag Hong Kong shares down as trade spat eyed

Chinese rare earth stocks surge after President Xi Jinping's visit to a facility

HONG KONG (Nikkei Markets) -- Hong Kong shares gave up early gains to end lower Tuesday, as concerns remained over Sino-American relations even as Washington eased restrictions on China's Huawei Technologies.

The Hang Seng Index fell 0.5% to 27,657.24 after rising as high as 27,915.16 earlier. The gauge changed direction at least 12 times during the day. Pan-Asia insurer AIA Group slipped 1.1%, while Ping An Insurance Group edged 0.5% lower. The two stocks were among the biggest contributors to the gauge's losses by points. Internet services heavyweight Tencent Holdings slipped 0.2%.

Drugmakers CSPC Pharmaceutical Group and Sino Biopharmaceutical fell 0.1% and 2.1%, respectively. During the midday break, CSPC reported a 28.8% increase in March-quarter net profit and a 25.6% rise in revenue. Sino Biopharm is scheduled to report results later Tuesday.

Sunny Optical Technology Group extended recent losses, slipping 0.4%. The stock has lost 19.5% over the last four trading days after the U.S. added its customer Huawei Technologies to a list of companies banned from buying components and technology from U.S. companies without government approval. Also last week, U.S. President Donald Trump signed an executive order to ban the use of information and communications technology or services that pose "an unacceptable risk" to national security.

However, the U.S. government on Monday temporarily eased trade restrictions on Huawei, allowing the company to purchase U.S.-made goods to maintain existing networks and provide software updates to existing handsets until Aug. 19. Google on Sunday suspended business with Huawei that would cause the smartphone maker to lose access to updates of the Android operating system.

The U.S. government's announcement is "relatively positive" news, the "silver lining in a very pessimistic situation," said Jason Lee, vice president for stocks at Hong Kong consultancy Investment Strategy Institute. "The rebound will likely be short-lived as fresh negative news comes out every day."

Chinese telecommunications equipment maker ZTE, which shed 13.9% over the previous three trading days, climbed 2.7% on Tuesday.

Meanwhile, China's ambassador to the European Union, Zhang Ming, told Bloomberg in an interview that Beijing could retaliate against the U.S. move to blacklist Huawei.

Shares of Chinese rare-earth companies jumped in Hong Kong and mainland China on Tuesday amid speculation Beijing could use the materials, which are used in the production of electronics, electric vehicles and defense equipment, as a bargaining chip in the Sino-American trade war.

Shares of China Rare Earth Holdings, a company that makes rare-earth and refractory products, soared 108.1% in Hong Kong, while shares of JL Mag Rare-Earth, which develops and makes material used in high-performance magnets, jumped by the day's 10% limit in Shenzhen.

The gains came after state-run Xinhua reported that President Xi Jinping on Monday visited a JL Mag facility in Jiangxi province and inspected its production process and operations.

In the mainland, the Shanghai Composite Index rose 1.2%, while its Shenzhen counterpart added 1.8%. The yuan traded onshore fell 0.1% to 6.9158 against the U.S. dollar.

Smartphone components supplier Q Technology Group rose 3.7% to HK$5.94 in Hong Kong. The company said its controlling shareholder, He Ningning, bought a total of 300,000 company shares on May 20 at an average price of HK$5.72 apiece, while Executive Director Hu Sanmu bought 50,000 shares at an average price of HK$5.70 apiece.

Pork producer WH Group, which has significant interests in the U.S., added 1.7%. The Mexican government on Monday announced plans to abolish a 20% retaliatory tariff on U.S. pork, effective immediately, according to Guotai Junan International. The "tariff cancellation from Mexico is estimated to boost demand for U.S. pig-rearing and pork and their prices, and hopefully can boost WH Group's U.S. animal-rearing business' margin," the brokerage said.

VTech Holdings fell 2.4% following a 17% decrease in the cordless phone and electronic toy maker's net profit for the full year ended March 31.

--Amy Lam

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