CHINA Mobile Ltd. just pulled the rug out from under one of the world’s hottest trades.

Buying Chinese stocks related to 5G is no longer a slam dunk. Competition to supply China’s telecom giants has become so intense that cable makers are battling a severe price war that caught investors off guard.

Instead of the earnings windfall that many investors were hoping for, profit margins will likely be squeezed and analysts say some companies may only manage to break even this year.

That puts a huge damper on the enthusiasm around firms tied to next-generation wireless technology.

China Mobile’s order for fiber-optic cable last month sent shares of anything with a hint of 5G rallying. But the results of that tender showed suppliers had to bid at least 35 percent lower than the price cap to win, according to a Jefferies note dated Tuesday. That sets a new benchmark for China’s other telecommunications firms, which also have the power to force cable makers to significantly lower prices.

Jefferies analysts said they had to change their entire “thesis” on Yangtze Optical after the tender results, downgrading the stock to the equivalent of sell from buy. Their new price target of HK$16.32 (US$2.08) implies the stock will slump another 33 percent from Tuesday’s close within the next 12 months. A previous target called for a 61 percent rally. (SD-Agencies)