Cars, Pigs and Handset Parts: Three Firms Show Troubles For Chinese Stocks – Wall Street Journal

Most Asian stock indexes dropped Wednesday. Hong Kong’s Hang Seng fell 0.3%, as did Japan’s Nikkei 225.

A 0.3% decline in the Shanghai Composite Index left the mainland Chinese stock benchmark just a fraction of a percent above the nadir it reached in January 2016.

Wednesday’s Big Theme

Hong Kong’s benchmark stock index dipped into bear-market territory at Tuesday’s close. The index’s worst-performing stocks show the breadth of the challenges facing Chinese markets.

What’s Happening

The three biggest losers in the Hang Seng Index this year are

Geely Automobile Holdings
Ltd.


GELYY -5.15%

,

AAC Technologies Holdings
Inc.


2018 0.71%

and WH Group Ltd. On Tuesday, the Hang Seng’s decline left it more than 20% below its late-January high. But these stocks are each down by more than 40% in 2018.

The Hong Kong skyline. The city’s benchmark Hang Seng Index entered bear-market territory on Tuesday and declined on Wednesday morning.


Photo:

jerome favre/epa-efe/rex/shutter/EPA/Shutterstock

Geely, like other car makers, is suffering as Chinese consumers lose confidence, denting buyers’ appetite for vehicles and other big-ticket purchases. Auto sales dropped for a second-straight month in August.

Beijing’s deleveraging campaign has also played a role. A series of peer-to-peer lending scandals sparked a crackdown on the practice, which is often used to fund car purchases.

Meanwhile, WH Group and AAC have both been knocked by political tensions. On Saturday, President Donald Trump called again on

Apple
Inc.

to shift production from China to the U.S. Mr. Trump’s tweet hit AAC, which is a supplier to Apple and other handset makers. Technology hardware companies like AAC are also grappling with a drop in global handset sales; a Thomson Reuters index of companies in the Asia Pacific region making electronic equipment and parts is down 18.4% this year.

WH Group makes about a third of its revenue in China. The price of soybeans, vital for feeding its pigs, has climbed in China this year after Beijing imposed tariffs on U.S. imports. The company’s plan to export pork to China and elsewhere from its U.S. subsidiary Smithfield is also under threat from growing tensions over trade.

WH Group is also exposed to an outbreak of African swine fever, after 30 pigs at an external supplier were found to be infected, causing a six-week shutdown.

Market Reaction

Some analysts think trade relations may get even worse, after Mr. Trump said tariffs on another $267 billion in Chinese goods have been prepared—which would effectively expand levies to cover all the country’s exports to the U.S.

“I don’t believe the Trump administration is just posturing,” said Kristina Hooper, chief global market strategist at Invesco. “I believe it is not only willing but eager to start a trade war with China. And I can’t come up with any compelling reasons why China would acquiesce to the US’s broad and confusing demands.”

Elsewhere

The yuan was roughly flat against the U.S. dollar in offshore markets, with the Chinese currency at 6.8775 per greenback.

Write to Mike Bird at Mike.Bird@wsj.com