China fund managers slash ZTE valuation after U.S.
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[April 23, 2018]
By Samuel Shen and Adam Jourdan
SHANGHAI (Reuters) - Chinese funds have
slashed valuations of ZTE Corp after the United States banned American
companies from selling components to the telecoms equipment maker for
seven years, a move ZTE said threatened its very survival.
The U.S. action last week was sparked by ZTE's violation of an agreement
reached after it was caught illegally shipping U.S. goods to Iran.
American companies are estimated to provide 25-30 percent of the
components used in ZTE's equipment.
Chinese mutual fund managers cut the value of the stock in their
portfolios by 20-30 percent in a spate of announcements over the
weekend, a blow to ZTE that suspended trading in its mainland and Hong
Kong shares on April 17.
Around 40 Chinese mutual funds have adjusted the valuation of ZTE in
their portfolios since it suspended trading. In the latest batch, five
fund managers revalued the stock on Saturday.
Huatai-PineBridege and GTJA Allianz cut their valuation of ZTE's
mainland shares to 25.05 yuan, 20 percent lower than its last trading
price. JT Asset Management - the most pessimistic - slashed the
valuation to around 30 percent below ZTE's last close of 31.31 yuan
Several funds with exposure to ZTE's Hong Kong shares, including HuaAn
Fund and Harvest Fund, cut valuations to about 20 percent below the last
trading price of HK$25.60 ($3.26).
ZTE, which had a market capitalization of about $20 billion before
trading in its shares was suspended, did not respond to a request for
comment on Monday.
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The logo of China's ZTE Corp is seen on a building in Nanjing,
Jiangsu province, China April 19, 2018. REUTERS/Stringer
The valuation adjustment by mutual funds could be just preliminary, as the real
impact of the U.S. sanctions needs to be assessed continuously as the incident
unfolds, said Reagan Li, investment manager at private fund house Shanghai
On Sunday, ZTE said it was "making active communications with relevant parties
and seeking a solution to the U.S. export denial order". Earlier, the U.S.
Commerce Department said it would allow ZTE to submit more evidence related to
The threat to ZTE's business has triggered a broad sell-off in technology shares
as investors fear the sector could suffer from the fallout, or that other firms
could be targeted by the United States amid escalating trade tensions.
Shares in display maker BOE Technology slumped as much as 6 percent on Monday,
even after the firm said it had not received any official information regarding
U.S. sanctions in response to rumors in the market that it would be targeted.
The CSI Information Technology index of Shanghai- and Shenzhen-listed tech firms
fell 2 percent.
"Investors are asking: who will be next on the U.S. sanction list?" fund manager
(Reporting by Samuel Shen and Adam Jourdan, additional reporting by Anne Marie
Roantree in Hong Kong; Editing by Himani Sarkar)
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