ZTE’s valuation tumbles following U.S. sanctions

The United States sanctioned Chinese telecom equipment maker ZTE after it was caught illegally shipping U.S. goods to Iran.

With the United States banning ZTE Corp from selling its components to U.S. telecom equipment makers for seven years, Chinese funds have significantly reduced its valuation with ZTE Corp saying its survival is at risk.

The U.S. move, last week, was sparked after ZTE was caught illegally shipping U.S. goods to Iran.

U.S. equipment makers are estimated to provide only 25% to 30% of components that ZTE uses in its equipments.

Following the U.S. action, nearly 40 Chinese mutual fund managers have reduced the value of the stock in their portfolios by almost 20% to 30% over the weekend; as a result trading in ZTE’s shares was suspended in Mainland China and in Hong Kong shares on April 17.

On Saturday, 5 more fund managers had reduced their stock position in the stock. JT Asset Management slashed ZTE’s valuation by 30% below ZTE’s last stock price of $4.98 (31.31), while GTJA Allianz and Huatai-PineBridege cut the valuation of ZTE’s mainland shares to 25.05 yuan, 20% lower than its last trading price. Many other funds, including Harvest Fund and HuaAn Fund, who were exposed to ZTE’s Hong Kong shares cut valuations to around 20% below the last trading price of $3.26 (HK$25.60).

Trading in ZTE’s shares was suspended on Saturday. Before Saturday, ZTE had a market capitalization of around $20 billion.

According to Reagan Li, investment manager at Shanghai V-Invest, a private fund house, the adjustment in ZTE’s valuation could be an initial shock, the real impact of U.S. sanctions will have o be monitored and assessed on a continuous basis as they unfold.

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