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Nikkei Markets

Hong Kong shares slip as trade woes hurt tech hardware companies

Sunny Optical extends losses amid deepening concerns over Huawei

HONG KONG (Nikkei Markets) -- Hong Kong shares headed lower on Monday, weighed down by weakness for Chinese technology hardware companies, as concerns over the fallout from escalating Sino-American trade tensions mounted.

The Hang Seng Index had fallen 0.4% to 27,827.32 by noon following a 2.1% slide last week. Social media and gaming major Tencent Holdings declined 2.5%, contributing to more than half of the index's losses by points. Financial heavyweights Ping An Insurance Group and HSBC Holdings lost 1.8% and 0.6%, respectively.

Smartphone components supplier Sunny Optical Technology Group declined 4.3%, leading percentage losses on the index. The stock slumped 16% last week after its customer Huawei Technologies was added to a list of companies banned from buying components and technology from U.S. companies without government approval. Google has suspended some business with Huawei after 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, causing Huawei phones to lose access to updates of the Android operating system, Reuters reported on Sunday.

China Galaxy International said the action on Huawei is the same as the export ban imposed on ZTE in April last year. The brokerage company expects smartphone shipments and the global 5G rollout to be affected in the near term.

Chinese telecommunications equipment maker ZTE fell 0.5% following a 14.7% drop last week in the wake of Trump's blacklist.

Losses on Monday morning were "mainly influenced by fresh negative news on Huawei over the weekend," said Daniel So, strategist at CMB International Securities. Investors are worried that China's 5G road map may be delayed as the U.S. is being "quite aggressive," he added.

Semiconductor Manufacturing International added 6.5%. China Galaxy International said it expects the market to look for potential beneficiaries of the disruption to the Huawei supply chain, and sees SMIC as one of the hardware names likely to gain from the trend.

Telecommunications cable maker Hengxin Technology climbed 4.8% after saying its unit helped a branch of China Tower complete its first trial for 5G network coverage in a line in Zhengzhou Metro tunnels. China Tower shares were down 5.3%.

CMB International's So said he expects "the rush to defensive stocks" to continue in May and June. With the U.S. and China "quite hard in their stances, negotiation is unlikely in the near term."

Trade talks between the U.S. and China "appear to have stalled," CNBC reported on Friday, citing two sources briefed on the status of the negotiations. Washington this month raised import tariffs on Chinese goods, and Beijing has announced plans to retaliate.

In the mainland, the Shanghai Composite Index was down 0.6% by midday on Monday, while the yuan traded onshore rose 0.2% against the dollar to 6.9079.

The People's Bank of China in its quarterly monetary policy report on Friday vowed to continue its targeted policy stimulus at home, warning that escalating Sino-American trade tensions could destabilize the economy.

"The report suggested the PBOC would avoid an over-tightening of monetary policy when growth revival is still nascent, as that is not only unwise from cyclical perspective, but also probably not good for structural deleveraging," analysts at Goldman Sachs, wrote in a note. "Overall, we believe a pragmatic approach will be adopted."

Liquid crystal display panel maker Truly International Holdings jumped 6% in Hong Kong after saying it expects profit for the January to March period to have jumped eightfold from a year ago.

Metal minerals company New Provenance Everlasting Holdings slumped 6.5% after saying it expects to have swung to a net loss the full year ended March 31, compared with a profit in the year-ago period.

-- Amy Lam

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