FedEx Drops as China Opens Probe Amid Escalating U.S. Spat

(Bloomberg) -- FedEx Corp. fell 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 Saturday that it’s 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 fell 1.2% to $152.48 at 9:39 a.m. in New York. The shares last closed below that level in June 2016.

Additional companies are at risk of getting caught 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 like 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 on Sunday that the government is firmly against the U.S.’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, Tennessee-based courier, which had already felt the impact of China’s slowing economy due to trade tensions, apologized for errors involving Huawei packages following reports that parcels were returned to senders. China’s biggest tech company said it’s 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 U.S. 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 Sunday that “there’s 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 Saturday.

With markets roiled by the threats and rhetoric on trade, the S&P 500 had its worst month of May in seven years. Investors are now looking to a meeting between Trump and Chinese President Xi Jinping at the end of the month at the Group of 20 Summit in Osaka for a possible rapprochement and easing of trade tensions.

(Updates shares in fourth paragraph. An earlier version of this story corrected the share move.)

--With assistance from Crystal Chui, Dandan Li and Miao Han.

To contact the reporters on this story: Andrew Noël in London at anoel@bloomberg.net;Tony Czuczka in New York at aczuczka@bloomberg.net

To contact the editors responsible for this story: James Ludden at jludden@bloomberg.net, Brendan Case, Anthony Palazzo

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