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FedEx Corp. shares dropped as investors assessed the impact of a Chinese probe that puts the delivery company in the middle of an escalating trade conflict with the U.S.
China said June 1 that it is investigating FedEx for “wrongful” deliveries, a move framed by the state news agency as a warning by Beijing after the Trump administration declared a ban on business with telecommunications giant Huawei Technologies Co.
“It is reasonable to anticipate pressure on FDX’s business with a portion of its China outbound customers, which adds to the current backdrop of weak international airfreight activity,” UBS Group AG analyst Thomas Wadewitz said in a note to clients. He cut his price target to $136, the lowest on Wall Street.
FedEx traded as low as $148.45 ahead of regular trading in New York, 3.8% below the close May 31. The shares last closed below that level in June 2016.
China is only 1-2% of FedEx’s business, according to the company. But, the investigation launched by the Chinese government illustrates the increasing pressure that U.S. companies are facing from the trade war escalation https://t.co/VVwG9U7Bzb pic.twitter.com/LNMke48fMJ— Bloomberg TV (@BloombergTV) June 3, 2019
Other companies are at risk of being swept up in the escalating spat. China said it was drawing up a list of “unreliable entities” that harm the interests of local companies. That opens the door to targeting a broad swath of the global tech industry, from U.S. giants such as Alphabet Inc.’s Google, Qualcomm Inc. and Intel Corp. to non-American suppliers that have cut off Huawei, such as Toshiba Corp. and SoftBank Group’s ARM Holdings.
A Chinese official said June 2 that the government is firmly against the U.S.’ “long-arm” jurisdiction on Huawei, while downplaying concerns that the planned list of unreliable entities will be used to target foreign companies as a retaliation tool in the trade war.
The Memphis, Tenn.-based courier, which already had felt the impact of China’s slowing economy due to trade tensions, apologized for errors involving Huawei packages after reports that parcels were returned to senders. China’s biggest tech company said it is reviewing its relationship with the U.S. delivery service. Two packages containing documents being shipped to Huawei in China from Japan were diverted to the United States without authorization, Reuters reported.
China opened a probe because FedEx violated Chinese laws and regulations and harmed customers by misdirecting packages, Xinhua said. Vice Commerce Minister Wang Shouwen said June 2 there were no grounds to blame China for starting the investigation into FedEx. China Central Television said in a commentary the probe will be a warning to other foreign companies and individuals “that violate Chinese laws and regulations.”
FedEx said it values its business in China and its relationship with Chinese clients, including Huawei. “FedEx will fully cooperate with any regulatory investigation,” the company said in a statement June 1.