20180618-招商证券_香港_-Back_to_the_war_12页_1mb_1mb

Summary of Strategy Report: US-China Trade War Impact

Core Content

This strategy report analyzes the impact of the US-China trade war on various sectors and provides investment recommendations based on the trade policies and their economic consequences. The report outlines the key developments, including the announcement of tariffs, the potential economic and political ramifications, and the market implications for different industries.

Main Points

1. Trade War Developments

• On June 15, 2018, the Trump administration announced 25% tariffs on US$34bn of Chinese imports, effective from July 6, targeting high-tech sectors such as electronic components, industrial equipment, construction equipment, auto-parts, pharmaceuticals, and aerospace/transportation.
• A further US$16bn of tariffs was to be determined after a public hearing.
• In response, the Chinese government imposed 25% tariffs on US$34bn of US imports, including agricultural products and automobiles, effective from July 6. A second batch of US$16bn worth of imports (e.g., coal, crude oil, gasoline, and medical equipment) will follow later.
• China's previous commitments to reduce the trade gap are no longer relevant.

2. Economic Impact

• In 2017, US imports from China totaled US$505.6bn, with US$50bn (c.10%) coming from China and representing c.2% of China's total exports.
• The negative impact on China's GDP is estimated to be <0.1ppt in the short term. In the worst-case scenario, if net exports to the US drop to zero, GDP could fall by c.0.4ppt.
• The top export sectors to the US include cell phones (13.9%), apparel and footwear (11.7%), computers (9.0%), and telecom equipment (6.6%).
• The top import sectors from the US include aircraft (12.5%), soybeans (9.5%), passenger cars (8.1%), and semiconductors (4.7%).
• Soybeans, which account for >80% of China's consumption, are heavily impacted as US soybean exports to China are >50% of total imports.

3. Political Impact

• The trade war is expected to negatively affect US-China relations and reshape the global political landscape.
• The likelihood of a return to negotiations is low, and the battle is likely to be prolonged.

4. Market Implications

• The HSI is expected to trade at 11-13x forward PE in 2018 (equivalent to 27,000-33,000) and 11-12x forward PE in NT (equivalent to 27,000-31,000).
• The HSI currently trades at 12x forward PE, above the 11x historical average.
• The S&P is trading at a level far above the historical CAPE, indicating potential overvaluation.

5. Sector Analysis

Key Information

• The trade war is expected to intensify tariff volatility and headwinds for the markets.
• The Chinese government has announced measures to reduce trade tensions, including lowering import tariffs, opening up the manufacturing sector, and relaxing foreign investment restrictions in key industries.
• Investment ratings are provided for each sector and company, with BUY recommendations for those expected to outperform.

Valuation Analysis

• The report includes valuation charts comparing current and historical valuations across sectors and indices.
• HSI and S&P are analyzed for their PE and EPS performance.
• Top picks are listed with market cap, current price, target price, and P/E and dividend yield estimates.

Investment Recommendations

• Sector Ratings: OVERWEIGHT, NEUTRAL, and UNDERWEIGHT are provided based on expected performance.
• Company Ratings: BUY, NEUTRAL, and SELL are given for specific companies.
• The report emphasizes caution and opportunities in underexposed sectors and companies.

Analyst and Regulatory Disclosures

• The report includes disclosures from analysts, confirming that the views are their own and not influenced by compensation.
• Regulatory disclosures are provided, outlining the legal and jurisdictional restrictions on the distribution and use of the document.
• The report is not directed at the general public and is intended for investment professionals and relevant persons as defined by UK and Hong Kong regulations.

Conclusion

The US-China trade war has significant implications for both economic and market dynamics, with different sectors and companies being affected to varying degrees. The report provides detailed analysis, sector-specific insights, and investment recommendations, emphasizing the need for caution and highlighting opportunities in certain areas.