December 6, 2018 / 7:43 AM / 6 months ago

China stocks slump as Huawei CFO arrest triggers tech sell-off

* SSEC -1.7 pct, CSI300 -2.2 pct

* IT, hardware stocks hard pressed after Huawei CFO’s arrest

* Investors fear fresh U.S.-China tensions over tech transfer (Updates with closing prices, analyst comments)

By Noah Sin

HONG KONG, Dec 6 (Reuters) - Sharp losses in technology shares pulled down benchmark stock indexes in China and Hong Kong on Thursday, after the global chief financial officer of Chinese technology giant Huawei was arrested in relation to alleged violations of U.S. sanctions.

The arrest could drive a wedge between China and the United States just days after President Donald Trump and President Xi Jinping agreed to a temporary truce in their trade war to give the two sides more time for negotiations.

Meng Wanzhou, one of the vice chairs on Huawei’s board and the daughter of company founder Ren Zhengfei, was arrested in Vancouver and is facing extradition to the United States, a Canadian Justice Department spokesman has said.

The arrest is related to violations of U.S. sanctions, a person familiar with the matter said, though officials have so far stayed mum on her allegations.

The news sent shares of technology companies and hardware suppliers tumbling. Huawei is one of the world’s largest makers of handsets and telecommunications network equipment.

CSI300’s sub index for IT stocks slid 3.4 percent. The wider CSI IT index was down 3 percent, while the CSI’s All Share Telecom index lost 4.5 percent.

In Hong Kong, the Hang Seng’s IT hardware index and the sub index for tech firms were down as much as 4 percent in afternoon trading.

The tech rout and renewed trade worries pulled the Shanghai Composite index down 1.7 percent to 2,605.18 points, while the blue-chip CSI300 index fell 2.2 percent.

Chinese H-shares listed in Hong Kong and the Hang Seng dipped as much as 3 percent.

“The impact (in the market) is quite big because we just had the Trump-Xi meeting, and people were expecting a 90-day honeymoon,” said Linus Yip, chief strategist at First Shanghai Securities in Hong Kong, referring to Beijing and Washington’s agreement last weekend to refrain from adding tariffs on each other while they resumed trade talks for three months.

While another Chinese tech company, ZTE, fell foul of the U.S. sanction regime, “no arrest was made back then,” Yip added, reflecting the seriousness of the Huawei saga.

“It is (U.S. allegations of Chinese) technology transfer that people really worry about,” Patrick Yiu, managing director at CASH Asset Management in Hong Kong, added. “In comparison, the trade deficit issue is not that difficult to resolve.”

Thursday’s fall shows “investor confidence is still weak, and momentum is lacking for the market to rebound,” said Zhang Gang, a Shanghai-based analyst at Central Securities.

“Also, we are near the end of the year, and given the market conditions, some funds will choose to pull out of the market and observe on the sidelines.”

Ben Kwong, director of research at KGI Asia in Hong Kong, noted Huawei was not the only reason for scepticism in the market.

“People are just as worried about further adjustments in the U.S. stock market, the inverted yield curve and a slowing economy there,” he said.

Editing by Jacqueline Wong and Kim Coghill

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