Trade tensions between the US and China now pose a real risk to markets, with leading indicators pointing to lower global growth. We sat down with Stephane Andre, Principal at Alphinity Investment Management to get his view and to see who the winners and the losers may be in this scenario.
- Trade tensions between US and China have become a real risk, affecting sentiment at a time that leading indicators such as Purchasing Manager Indices (PMI’s) are already falling. Sentiment is driving a move from cyclical to defensive investments.
- The market may still be ‘pricing in’ the tariffs, with the implications of the second ‘tranche’ of $200 billion of proposed tariffs being factored in now. Economists estimate that each $100 billion of tariffs could take 0.1% off global growth (currently 3.9%).
- Losers could include Qantas (if trade affects business); base metals and copper companies; miners more generally (although these could potentially benefit if China responds with stimulus).
- Winners could include: Stocks with US$ revenues, as the A$ would fall (e.g.: Resmed, CSL, Aristocrat); Bluescope as it has US operations where steel prices are higher; and yield sensitive names and staples.
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Australian agriculture stocks could also stand to benefit from a trade war between the US and China. Apart from the boost provided by a weaker Australian dollar, China has also increased tariffs on a large number of US agricultural exports into that country in response to the Trump tariffs, and this should provide a competitive advantage to many Australian agricultural producers exporting to China. In addition, it could potentially provide these companies with an opportunity to steal market share from US food exporters.