|作者：||Jessie GUO,Edith Qian|
|摘要：||Report title:Is the game over?
Analyst:Jessie GUO,Edith Qian
■ US announced tariff hike on US$200bn of China imports after rounds of tough negotiations
■ Negatives weigh on the market in NT but could speed up more favorable domestic polices
■ Reiterate cautious view on Q2
Trade negotiation: US/China trade war has been major market headwind since it started in last April when US President Trump unveiled plans for 25% tariff on US$50bn of Chinese imports (Figure 12). Situation then worsened in August when he added another US$200bn of imports. Negotiations between two sides have been stalled since then. Major progress was made in last December and this February when Trump extended deadlines of raising tariff. It seemed that the two countries were close to a deal after rounds of negotiations. However, Trump’s twitter comments on May 5 showed substantial deterioration of the progress and cast clouds on global markets. US announced tariff hikes on May 10, followed by China’s announcement of retaliation. This came as a huge disappointment, politically and to the market, after rounds of tough negotiations. According to Bloomberg News dated May 11, US gives China 3-4 weeks to agree upon a deal or face additional tariffs on a further US$325bn imports. Game continues dramatically.
Economic implications: Imports from China reached US$539.5bn in 2018 and tariff list of US$250bn accounts for c.46% of US’s imports from China. The US and the EU have been major trade partners accounting for 19.3% and 16.5% of China’s total exports, respectively. Based on the estimate of CMS China macro research team, 10%/25% tariff rate would lead to 15%/36% decrease in export. Hence hiking tariff rates on US$200bn of goods from 10% to 25% could lower China’s total export by c.1.9%. CMS currently forecasts 2019 GDP growth of 6.4%.
Sector/stock implications: 1). China’s top export sectors to the US include: cell phones & other household goods (14.2% of total US imports from China in 2018), computers and accessories (15.8%) and telecom equipment (6.7%) (see Figure 11). Top import sectors include aircraft (15.1% of total US export to China in 2018), semiconductors (5.9%), industrial machines (5.7%), auto (5.5%), crude oil (4.5%) and soybeans (2.6%) (see Figure 10). 2). We screened out HK listcos (market cap >US$1bn) with heavy exposure to the US (>15% of 2018 revenue) in Figure 14. Some stocks are likely to be impacted most. 3). Weaker RMB should negatively impact those with high USD loans (e.g. some property developers) and those with heavy Forex exposure such as airlines.
Stock market expectations: The failure to reach agreement is set to be negatives to the global market. HSI/MSCI China/CSI300 rallied 10%/14%/24% YTD, respectively, and trade at 11.1x/11.7x/11.8x respectively vs. 3-yr median of 11.7x/12.3x/12.7x. There is no change of our full year view: rally in Q1; cautious in Q2 and better outlook in 2H (refer to 2019 outlook: What’s past is prologue dated 29 Nov 2018 for details). We expect HSI to stay trend-ranged between 25,000-26,000 (10-10.5x forward PE) and 29,000-32,000 (12-13.5x forward PE). The silver lining of the cloud is that the government is likely to carry out more favorable policies to support economic fundamentals in the face of tough external backdrop, which should bring some positives to 2H.