Trade bill advance boosts some China-related stocks
Reuters Company News - May 25, 2000 13:15
By Haitham Haddadin
NEW YORK, May 25 (Reuters) - Some telecommunications stocks with links to China added to their gains early Thursday following U.S. House approval of a market-opening China trade bill, but little impact was seen on sectors like automotives or pharmaceuticals where analysts say gains could be limited.
The House of Representatives on Wednesday approved permanent normal trade relations (PNTR) with China, which -- following Senate passage which is expected later this year -- will ensure that U.S. firms will benefit from a historic pact between Washington and Beijing.
Under the November deal China promised to cut tariffs and open its markets for goods and services from agriculture to telecommunications once it joins the World Trade Organisation.
Early gainers included mobile phone giant Motorola Inc. , the biggest U.S. investor in China. It rose 5 to 98 on the New York Stock Exchange, adding to a 2-point gain in Wednesday's aftermarket that came on the heels of a strong close that day.
Another was UTStarcom Inc. , which Merrill Lynch analyst Michael Ching said could be the biggest telecoms beneficiary in China given its regulatory knowledge and manufacturing and sales presence in China.
Shares in California-based UTStarcom, which provides telecommunications equipment used mainly by China service providers, rose 3 to 39 on the tech-heavy Nasdaq market.
"The recent passage of the China trade bill will be a long-term positive for many of our communications equipment companies," Ching said.
"China currently represents about 6 percent of the total communications equipment market, but if new service providers are allowed to enter the Chinese market, we would expect spending in China to accelerate," he added in a research note.
Hong Kong-based Chinadotcom Corp. was up 11/16 at 27-11/16, having soared as high as 31-5/8 earlier in the day as investors bet the Pan-Asian Internet company would benefit from PNTR.
For Chinadotcom, which generates revenue from 10 Asian markets and has a partnership with America Online , one of the most significant aspects of the bill will be that China will create legal frameworks for the Internet sector. This will help the firm move ahead with its plans for mainland China.
Meanwhile cell phone maker Qualcomm Inc. climbed more than 3 to 82-1/4 before slipping back to 77-3/8 by mid-day.
Other issues including Motorola also came off their earlier highs after analysts warned that any positive effect on market sentiment was likely to be limited.
Some analysts said Qualcomm and Motorola could increase their market shares in China, which is expected to become the world's second largest by year's end. They said PNTR status for China, along with WTO membership, likely would lead to deployment in the Asian nation of Code Division Multiple Access technology which is key to cell phones.
San Diego-based Qualcomm, which developed CDMA, has licensed the technology to other firms including Motorola.
Others, however, said PNTR status for China could diminish U.S. influence on Beijing, making it less likely China will adopt CDMA.
"While we have been cautious on our assumptions related to CDMA in China, passage of this bill may still be perceived negatively for Qualcomm and we maintain our neutral intermediate term opinion," Ching said.
Alex Cena, an analyst with Salomon Smith Barney, agreed that CDMA deployment in the Asian nation was not a done deal.
"There is some impact (from PNTR) but I think it is a small one. Most people realise that China getting WTO approval, there's a lot of politics involved," Cena said.
High-tech U.S. firms said PNTR will allow them to invest in Chinese telecom and Internet companies, and will help cut Chinese tariffs on software, semiconductors and personal computers sold to China, which is set to become the third largest market for semiconductors by next year.
Sectors where analysts see no quick boon are ones where revenues in China are small or of a long-term speculative nature, like pharmaceuticals and automotive.
Auto giant General Motors which says PNTR will remove trade barriers in China and create new business opportunities for U.S. firms, was down 2-7/16 at 73-1/16 at mid-day.
Boeing Co. fell 13/16 to 38-1/16. The aerospace giant sees China as the single largest market outside the U.S. for commercial jets in the next 20 years.
In the drugs sector, decliners included Bristol-Myers Squibb Co. and Johnson & Johnson . The firms are not seen significantly increasing sales in China unless Beijing addresses issues like price controls, intellectual property rights protection and drug counterfeiting.
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