TRADEWAR
It’s an important question. The thought of a trade war is scary for anyone who’s put money into Chinese stocks. Don’t let it scare you, though. I believe the trade-war rhetoric is actually a buying opportunity. And more than that, the real loser in a U.S.-China trade war isn’t who you’d expect. Let me explain... First, you should know that I don’t expect a true trade war between the U.S. and China. It would be bad for both sides... And that’s why I believe the bluster so far is only creating a buying opportunity.
and which Chinese companies make money in America. That’s all that matters. The folks at MSCI – the world’s leading provider of international stock indexes – recently dug into this idea. They looked at the MSCI China Index and MSCI USA Index a little more than a month ago to see who really loses in a U.S.-China trade war. The surprising result is that Chinese companies don’t earn much revenue from the U.S. The table below shows the sectors that earn more than 2% of their revenue there. Take a look at the chart below...
MSCI CHINA INDEX
The U.S. will be the real loser in a full- blown U.S.-China trade war.
That said, if we do get a full-blown trade war, the real loser might surprise you. Most folks assume the loser will be China. However... The U.S. will be the real loser in a full-blown U.S.-China trade war. Large U.S. companies have a lot more to lose than their Chinese counterparts. And it’s easy to prove... To know who wins and loses in a trade war, you need to know which companies make money outside their home country. Specifically, you need to know which American companies make money in China...
Only three sectors in China earn 2% or more of their revenue from the U.S. So in a trade war, most of the MSCI China Index would make it through unharmed. That’s less true for the U.S. The second table on the right shows which U.S. sectors have 2%-plus revenue exposure to China (see chart on following page)... Nearly every U.S. sector earns 2% or more of its revenue from China. Only utilities and telecom stocks missed the list. If Chinese revenue dried up due to a trade war, most large American businesses would
96 June 2018
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