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Nikkei Markets

Hong Kong shares plumb four-month lows as tech stocks slump

Lenovo tumbles amid trade war worries despite surge in quarterly profit

HONG KONG (Nikkei Markets) -- Hong Kong shares fell to a four-month low on Thursday, dragged down by losses for technology companies amid indications that Sino-American trade relations were souring further.

The Hang Seng Index shed 1.6% to 27,267.13, its lowest closing level since Jan. 24. The gauge has now fallen in four of the last five trading days. Internet services company Tencent Holdings declined 3.8%, its sixth day lower. Nomura said the weak stock price may be due to mixed quarterly results, and fresh concerns over China's macroeconomic outlook amid deteriorating trade talks. The stock has shed 12.8% since it reported first-quarter earnings last week.

Sunny Optical Technology Group slid 7.7%, resuming losses after an advance on Wednesday, as concerns over its customer Huawei Technologies remained after the U.S. added the Chinese smartphone maker to a list of entities banned from buying components and technology from American companies without government approval. AAC Technologies Holdings, also a supplier to Huawei, fell 6.4%.

Brokerage CGI-CIMB said it expects Huawei's overseas smartphone sales to decline about 70% in the second half of the year, but China sales will likely rise 20%. The brokerage expects Sunny Optical's earnings to be more severely affected than those of AAC.

The U.S. government is considering similar restrictions on Chinese video surveillance company Hikvision, according to media reports on Wednesday.

Meanwhile, personal-computer maker Lenovo Group declined 2.7% despite reporting a more than tripling of its fourth-quarter net profit to $118 million.

BOCOM maintained its "buy" rating on the stock, but said it expects a 1% to 2% hit to Lenovo's annual PC shipments amid market concerns over the Sino-American trade conflict.

Trade tensions between the world's two largest economies escalated this month, with the U.S. raising tariffs on $200 billion of Chinese goods and Beijing announcing a planned retaliation. U.S. President Donald Trump has also threatened to impose tariffs on $300 billion worth of Chinese goods.

Nomura on Wednesday said "it is more likely than not" that the Trump administration will move ahead with the final tranche of import tariffs of $300 billion of Chinese good at a 25% rate.

"Altogether, the U.S.-China relationship has moved further off track over the past two weeks," Nomura economists, including Lewis Alexander and Aichi Amemiya, wrote in a note. "We do not think the two sides will be able to get back to where they seemed to be in late April."

Meanwhile, U.S. Trade Secretary Steven Mnuchin told CNBC on Wednesday that he had no plans to visit Beijing at the moment. The last round of trade talks between the two sides took place in Washington on May 10.

"The U.S.-China relationship has worsened, with more sanctions coming from the U.S. and spreading fast to other technology sectors," said Jason Chan, senior portfolio manager at South China Asset Holdings. It is "very likely" that the U.S. is using blacklisting as a "bigger bargaining chip" before Trump and Chinese President Xi Jinping meet at a G-20 summit in Japan next month.

"It is hard to say if worries are overdone," he added.

In the mainland, the Shanghai Composite Index fell 1.4%, while the yuan traded onshore declined 0.2% to 6.9181 against the dollar.

In Hong Kong, television maker TPV Technology declined 1.7% despite swinging to a profit in the first quarter. Revenue during the three months ended in March fell 8.6%.

Oil-and-gas drilling equipment maker Hilong Holding added 2.3% after saying its Nigeria-based unit signed a drilling rig service agreement with Shell Petroleum Development of Nigeria (SPDC) for $27.66 million.

--Amy Lam

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