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Trade tensions hit two-thirds of Asia300 stocks in first half

Investor sentiment also weak on capital outflow fears as US hikes rates

ZTE has become a symbol of the U.S.-China trade fracas that is having global repercussions.

BANGKOK -- Trade friction between the U.S. and China was mostly to blame for the fall in two-thirds of Asia300 stocks in the first six months of 2018.

Stock prices of more than half the companies on Nikkei's list of the region's biggest and fastest-growing firms dropped for the first time in five six-month periods.

The stock prices for 215 of the 325 companies mostly used to calculate the Nikkei Asia300 index were down at the end of June. The index dropped 7%, compared with the 2% declines logged by the Nikkei Stock Average and Dow Jones Industrial Average. The market capitalization of the 325 companies fell 7%, or $600 billion.

Things took a turn for the worse on April 16, when the U.S. Department of Commerce issued a statement announcing tough sanctions against ZTE.

The statement said the Chinese state-owned telecommunications equipment maker "may not, directly or indirectly, participate in any way in any transaction involving any commodity, software or technology exported or to be exported from the United States."

ZTE thus became a symbolic victim of the trade row between the U.S. and China. Although Washington and Beijing concluded a deal to lift the sanctions on conditions including a huge penalty in June, ZTE is expected to suffer a fall in sales of smartphones and other products due to serious aftereffects, such as a decline in public trust. As investors dumped ZTE shares, the company's stock price plunged nearly 60% from the start of this year.

The share price of leading Chinese carmaker Guangzhou Automobile Group lost 43%, ironically because of its plan to enter the U.S. auto market in 2019. Auto exports from China may greatly lose their competitiveness due to an extra 25% U.S. tariff.

Great Wall Motor's stock price dropped 33% after Chairman Wei Jianjun in March said the automaker is considering entering the U.S. market. As with Guangzhou Automobile, dark clouds loom over Great Wall's growth strategy, featuring an entry into the world's second largest auto market.

Investors sold BOE Technology Group shares out of concern that sales of Chinese-made TVs using BOE's liquid crystal display panels will shrink in the U.S. Rolling-stock manufacturer CRRC saw its share price drop 27%, reflecting concern that exports to the U.S. will become difficult.

The stock price of WH Group, the world's largest pork-processing company after a $7.1 billion acquisition of U.S. meat processor Smithfield Foods, fell after Beijing announced an extra tariff on pork imports from the U.S., retaliation for Washington's adoption of additional tariffs.

The last time more than half of Asia300 companies experienced stock price falls was the July-December period of 2015, when China's sudden devaluation of its currency and the U.S. Fed's first rate hike in more than nine years.

China's economy is Asia's largest. When it slows, many global suppliers of home appliances, auto parts and other products receive fewer orders.

This has investors staying away from high-risk assets and gravitating to safe, low-reward bets. Since much of Asia is connected by trade and investment, this risk-averse climate is manifesting itself in the form of falling stock prices.

Investors fear that the U.S.-China trade fight will become more acute, said Motoko Miyano, senior vice president of treasury at Sumitomo Mitsui Bank's Bangkok branch.

Stock prices of Hon Hai Precision Industry, Pegatron and two other top Taiwanese contract manufacturers that have expanded by putting together smartphones and servers sold around the world, fell around 10%. The emergence of trade barriers can only threaten these kinds of global players.

Minor International, a Thai hospitality company known for its Anantara and Avani hotels, may lose momentum in China. And if the number of Chinese tourists visiting other countries drops, the company will fall into trouble in Thailand, where it logs half its sales.

Moreover, a decrease in Chinese tourists traveling abroad will add to the plight of an aviation industry already suffering from rising fuel prices. Investors are growing more alert as stock prices of Cebu Air of the Philippines, AirAsia of Malaysia and almost all other Asian airlines fall.

Shares of non-Chinese automakers in the region are being sold as well. Hyundai Motor of South Korea, which has been boosting exports to the U.S., is certain to be impacted as the administration of President Donald Trump imposes tariffs in the name of protecting American jobs. Tata Motors of India may see its British luxury subsidiary Jaguar Land Rover exposed to headwinds in the U.S., where it chalks up 20% of its global sales.

Asia's economies face another threat: Investors are withdrawing their money from the region as the U.S. raises interest rates. While the central banks of Indonesia, the Philippines and other Asian countries have responded by raising their rates to protect their currencies, the U.S. Federal Reserve's posture has made matters especially difficult for rate-sensitive issues and companies whose earnings are closely affected by rate trends.

As interest rates have risen steeply in Hong Kong, shares, such as those of Cheung Kong (Holdings) and Sun Hung Kai Properties, were sold in anticipation that the real estate market would weaken.

The shares of Ayala Land, the core company of major Philippine conglomerate Ayala, and Singapore-based property developer UOL Group sagged around 15%.

Higher interest rates have prompted investors to turn away from financial issues. The stock prices of Bank Rakyat Indonesia, a major state-run bank in Indonesia, and BDO Unibank of the Philippines have fallen more than 20%.

PTT Public Company, which among other things operates gas stations throughout Thailand, was among the Asia300 winners, thanks to rising resource prices. (Photo by Yumi Kotani)

Thai Airways International, which has borrowed in foreign currency to buy jetliners, is losing ground out of concern that the baht's depreciation and higher interest rates will increase Thai's repayment burden. Many other airlines may be in the same boat.

The near-future could get cloudier. Investors outside the region face the risk of foreign-exchange losses due to weak Asian currencies. In a report on Friday, Kota Hirayama, senior economist at SMBC Nikko Securities, warned that emerging economy stock markets will further decline if investors withdraw their funds to avoid foreign-exchange losses.

Meanwhile, the share prices of 109 Asia300 companies increased during the first six months of the year. Many of these winners benefited from rising natural resource prices. Among them were Bukit Asam, a leading coal mining company in Indonesia, and PTT Exploration and Production, a Thai governmental resource developer.

Asian property stocks declined almost across the board, but Vingroup of Vietnam was among the exceptions, posting a 68% price gain. Investors began seeking out Vingroup after it announced plans to make automobiles and smartphones.

Nikkei staff writers Shunsuke Tabeta in Beijing, Daisuke Harashima in Dalian, Yu Nakamura in Guangzhou, Takeshi Kihara in Hong Kong, Kensaku Ihara in Taipei, Jun Endo in Manila, Jun Suzuki in Jakarta, Takashi Nakano and Mayuko Tani in Singapore, Atsushi Tomiyama in Hanoi, and Yukako Ono and Marimi Kishimoto in Bangkok contributed to this report.

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