Battered and bruised ZTE takes another 10% hit

Shares in ZTE have continued to tumble, with another 10% being wiped off share price on Friday, while the threat of a trade war lurks in the background.

Even meeting US demands of hiring a new board, new nominees were announced earlier in the week, and the announcement the team would be applying for a $10.7 credit line from Bank of China and China Development Bank can do little to stem the flurry of heavy-hitting punches. The share price decline is of course a significant worry, though Nomura believes the worst is yet to come, believing recovering from the fallout will be tougher than expected.

Aside from the new board members, ZTE is also proposing a motion at the Annual General Meeting on June 29 to remove a clause which states the Chairman has to have at least three years’ experience at the company. There are considerable concessions which will need to be made to get back into the good books of the US government, but bringing in executives who are not tarnished by the company’s reputation is certainly a good move. The credit line will also be a useful addition.

Despite the share price, this should be deemed progress. The sanctions imposed by the US Government in April as a punishment for ZTE’s Iran and North Korea dealings were crippling, but the company is now operating once again. The factories are open and employees have something to do now. It might be shell-shocked environment, but at least the lights are on. While this might be seen as good news to ease tensions between the US and China, it might only be a brief reprieve.

The source of the tension between the two countries is still lingering. The $50 billion list of goods and services which will be subject to the tariffs is yet to emerge from the White House, though rumours have been circulating it will be later on today (Friday 15). This piece of paper has the potential to reinvigorate the unease, as President Trump continues his question to isolate the US as much as possible.

Despite sounding incredibly negative, this is good news. ZTE might be damaged, but it still exists, which was by no means a guarantee over the last couple of weeks.

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