Lenovo dips 23% as tech wrecked
US-Sino trade war and report on Chinese hacking roil Asian markets
An escalating face-off between the world’s two largest economies has caught Asian technology shares in the middle, hammering those with the most at stake.
The MSCI AC Asia Pacific Infotech Index hit the lowest since July 2017 on Friday as investors digested a Bloomberg News report that Beijing had hacked American computer networks using a microchip built by its spies. The story came the same day vice-president Mike Pence criticised China across economic, commercial and diplomatic fronts in a keynote speech.
While the two nations were already embroiled in a months-long tariff-raising trade war, the latest developments raise the broader question of the place of China — and its Asian suppliers — in the supply chain that feeds through to the US consumer.
“It all means trade friction will only get worse from here,” said Amir Anvarzadeh, a senior strategist with Asymmetric Advisors Pte in Singapore.
Chinese computer maker Lenovo Group Ltd slumped as much as 23% for its biggest loss in almost a decade before paring some of its decline by the close on Friday.
In a statement Friday, Lenovo said Super Micro Computer Inc, the company at the centre of the hacking chip investigation, is “not a supplier to Lenovo in any capacity” and the company will take steps to protect the ongoing integrity of its supply chain.
Super Micro supplied servers to clients that were altered to add the hacking chip, said the Bloomberg report.
Benchmark stock indices fell across Asia. Taiwan’s Taiex index fell 1.9% for its lowest close since May. The broader MSCI Asia Pacific Index is heading for its worst week since March.
ZTE Corp, a Chinese communications gear maker that’s been hit by American sanctions, fell 11% in Hong Kong, the most since June.
Walsin Technology Corp, the top emerging-market stock through the first half of the year before becoming the worst since mid-July, dropped 9.9% in Taiwan.
Taiwan lens maker Largan Precision Co, an Apple supplier, fell 7.3%. Realtek Semiconductor Corp was down 8.3% to a July low. Taiwan chipmaker Win Semiconductors Corp fell 9.9% to a February 2017 low.
“Electronics produced in China may be viewed as unsafe because of this news, and tech shares are falling in general because of that,” Ray K W Kwok, an analyst at CGSCIMB Securities Hong Kong Ltd, said of the Bloomberg story.
Semiconductor stocks around the world had already been under persistent pressure this year on concerns the cyclical industry has peaked amid flagging smartphone sales. Taiwan Semiconductor Manufacturing Co dropped 1.6% in Taipei.
Lenovo could be particularly vulnerable because it generated more than 30% of its revenue from North America and 75% from outside China in the most recent fiscal year.
It has built up its foreign sales through acquisitions, particularly from International Business Machines Corp. The company bought IBM’s PC business in 2005, including the ThinkPad notebook brand, and then agreed to buy its low-end server business in 2014. It also acquired Motorola Mobility from Google Inc, now known as Alphabet Inc, in 2014 in a $2.9 billion deal to bolster its smartphone business.
“The hack report has nothing to do with Lenovo, but since Lenovo sells PCs and servers there, some investors may have concerns on a sentiment level,” said Dennis Guan, a senior analyst at eFusion Capital. “It’s just too hard to predict how things will develop.”
SHORT LENOVO
In a trading note to clients, JPMorgan Chase & Co recommended shorting Lenovo with a six-month time horizon given the company’s PC and server sales to the US. “Whilst Lenovo isn’t directly implicated in the expose, it is hard not to see a US slowdown of their procurement of servers near term,” said the note.
Lenovo’s options trading volume surged, with almost 41,000 contracts changing hands Friday, 19 times the 20-day average. Puts contracts were about 20 times the 20-day average, data compiled by Bloomberg show.
Investors may also consider shorting Taiwanese computer companies including Quanta Computer Inc, Inventec Corp, Wiwynn Corp and Wistron Corp, JPMorgan said. Wistron gets about 20% of its enterprise server business from Super Micro, it said.
A Wistron press official confirmed Super Micro is a customer, but declined to provide further details.
Wistron fell 4.4% to a two-year low while Wiwynn retreated 6.9% for a fourth day of losses in Taiwan.
Losses in Asia followed declines in the US on Thursday. The Nasdaq 100 Index saw its worst one-day drop since June.