20170823-三星证券-US-China_Trade_Conflict_Reliving_the_1980s_19页_1mb

Samsung Strategy Weekly Summary

Core Content

This document provides an analysis of the US-China trade conflict in the context of historical precedents, particularly the US-Japan trade conflict of the 1980s. It outlines the current market and sector outlook, emphasizing the valuation of the Kospi and Kosdaq indices, EPS forecasts, and sector performance. The report also discusses the implications of the trade conflict and the potential use of US trade instruments like Super 301 and Special 301.

Main Points

US-China Trade Conflict

• Escalation: The Trump administration initiated a trade conflict with China under Section 301 of the US Trade Act of 1974, with potential use of Super 301 for more extensive retaliation.
• Historical Parallels: The conflict mirrors the US-Japan trade dispute of the 1980s, where the US targeted Japan's unfair trade practices, leading to structural reforms and a shift in economic dynamics.
• Goals: Trump's short-term aim is to reduce the trade imbalance by encouraging Chinese investment and spending in the US, while his long-term goal is to realign the global order in favor of the US.
• China's Response: China has emphasized the benefits of the US-China economic relationship and expressed willingness to resolve disputes through consultations, while rejecting accusations of currency manipulation and IP theft.

Market and Sector Views

Market Valuation

• Kospi: More attractively valued after recent pullbacks due to non-fundamental issues, with a 12-month forward P/E of 9.3 and P/B of 1.0.
• Kosdaq: Less attractive, with a 12-month forward P/E of 14.0 and P/B of 2.0.

EPS Forecast Changes

• Kospi: 16.7% increase in 6 months, with a 5.9% increase in 3 months.
• Kosdaq: 13.8% increase in 6 months, with a 6.9% increase in 3 months.

Sector Outlook

• Preferred Sectors: Semiconductors, steel, and banking due to strong 2H earnings outlooks.
• Value Traps: Machinery, shipbuilding, transportation, and consumer staples have seen performance declines.

Historical Comparison: US-Japan Trade Conflict

• Trigger: The 1985 Plaza Accord aimed to weaken the yen against the dollar, but the US failed to significantly reduce the trade deficit with Japan.
• Response: The US initiated the Structural Impediments Initiative (SII) in 1989, which Japan eventually accepted under pressure.
• Outcomes: Japan agreed to expand investment and consumption, and implement extensive reforms, leading to a decline in its trade surplus with the US.
• Relevance to US-China: The current conflict may follow a similar pattern, with China potentially yielding to US pressure on IP issues, which could mark a significant shift in bilateral relations.

US-China Trade Conflict Implications

• Short-Term Impact: Limited immediate effect on global stock markets, as negotiations are slow and ongoing.
• Long-Term Outlook: Could lead to structural changes in the global economy, with the US likely to maintain its dominant position in the knowledge-based economy.
• Knowledge Power: Becomes a key factor in global hegemony, with the US leading in innovation and technology due to its openness and support for experimentation.
• China's Challenge: Despite being a major economic and political power, China faces challenges in securing technological leadership, which is crucial for global influence.

US Trade Instruments

• Section 301: Authorizes actions against unfair trade practices, includes the National Trade Estimate Report (NTE), and allows for retaliatory measures.
• Super 301: A reinforced version of Section 301, allowing the USTR to identify priority countries and take immediate retaliatory actions if negotiations fail.
• Special 301: Focuses on intellectual property rights and does not specify retaliatory measures, giving the US flexibility in response.

Sector VEM Model and Kospi Compass

• Kospi Compass: Indicates continued bullishness despite volatility, with market sensitivity to political and military issues expected to ease.
• Sector Performance: Highlights both strong and weak sectors, with the preferred ones showing potential for growth.

Appendix: Super 301

• Purpose: To protect the US economy from unfair foreign trade practices.
• History: Initially used in 1990–1991, reactivated under Clinton in 1994, 1996, and 1999.
• Current Status: Still in effect and can be reactivated by the Trump administration.

Key Takeaways

• The US-China trade conflict is a significant geopolitical event with potential long-term economic implications.
• Historical parallels with the US-Japan trade conflict suggest that China may be pressured into similar structural reforms.
• The US is leveraging its knowledge power and innovation capabilities to maintain global dominance.
• Market valuations and sector performance indicate opportunities in the Kospi, particularly in preferred sectors like semiconductors and steel.