World's worst tech stock Lenovo may lose Hang Seng spot

[HONG KONG] Lenovo Group is increasingly at risk of being dropped from Hong Kong's benchmark equity index as its shares tumble more than any other technology company in the world.

The Chinese computer maker has slumped 56 per cent since being added to the Hang Seng Index in March 2013, wiping out US$5.8 billion in value. Companies removed from the gauge in the past decade have seen their value fall a median 48 per cent before being excluded, according to Bloomberg calculations.

Lenovo sank to its lowest level since October 2009 on Monday as a US ban on communications-equipment maker ZTE Corp and a global selloff by hardware manufacturers added to jitters about China's technology sector. Its shares were up 0.5 per cent as of 9.52am in Hong Kong on Tuesday.

The stock is one of the most shorted on the Hang Seng Index: 13.8 per cent of Lenovo's shares available for trade on loan to short-sellers, according to IHS Markit.

Removal from the gauge could spur more outflows from Lenovo, as at least US$107 billion worth of passive funds track the Hang Seng Index, data compiled by Bloomberg show.

"Risks that Lenovo will lose its seat are on the rise," said Kenny Wen, a strategist at Everbright Sun Hung Kai in Hong Kong. "Lenovo is having trouble in all key areas, from issuing cool smartphone models to keeping market share in computer businesses. The short-sellers may have picked the right target this time."

DROPPED BEFORE

The Beijing-based company was previously dropped from the Hang Seng Index in 2006, six years after first joining. Its decline since it was added back in 2013 is the biggest on the 171-member Bloomberg World Technology Index.

Lenovo said in an email that it doesn't comment on its share price or speculation.

The company's chief executive Yang Yuanqing is maintaining a bullish stance, saying in a WeChat post last week that Lenovo was back on track for growth.

The firm posted a loss in the December quarter after it was hit with a US tax charge and as its mobile business continued to struggle having rapidly surrendering market share.

Concern is rising that Lenovo will have to write off the value of its intangible assets, as smartphone unit Motorola is delivering lackluster results, according to Kevin Chen, a Hong Kong-based analyst with Mizuho Securities Asia.

The company's data centre business is being closely watched as that's the most promising area for helping a turnaround and cushioning the stock's decline, he said.

"Last year was supposed to be the year for Lenovo to hit the bottom and start seeing improvement - but we didn't see it," Mr Chen said. "Investors are losing patience."

BLOOMBERG