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In the stock market, it is difficult to find a company that is not vulnerable to some extent to the US-China trade war.
Shares of companies that deal a lot with China, such as chip makers and other technology companies, are obvious candidates for investors to sell when business concerns grow. They have fallen more than the rest of the market every time President Donald Trump sends a tweet or talks about customs duties.
But investors are also going beyond these first-rate effects by selecting the stocks likely to be the subject of the trade war. These choices now include many companies that do not have significant links with China but are still at risk.
That's why all shares of the S & P 500, except 2%, fell on August 5, when worries skyrocketed after China allowed its currency to devalue to its lowest level in a decade.
The damage has been widespread since Trump shocked investors on Aug. 1 by announcing that he planned to soon extend tariffs to virtually all Chinese imports.
The latest tariffs cover about $ 300 million worth of Chinese products, many of which are consumer products exempt from the first taxes. Even if Trump has delayed some of the tariffs, they will ultimately increase the costs for US companies importing goods from China. These companies will either have to pass on the higher prices to their customers or give up part of their profits. This is a big problem for investors because the price of a stock tends to follow the evolution of its long-term profits.
One of the concerns is that any uncertainties on trade will cause businesses and buyers to delay spending in the hope of waiting for the tumult. Companies claim to have witnessed such behaviors, which, if they accelerated, could lead to a self-fulfilling cycle in which weaker sales by companies would encourage them to reduce their hires. This in turn could lead to even lower expenses and more damage to the economy. This is a problem for most businesses, to a certain extent.
This is also the reason why some of the most affected stocks of recent weeks have little or no value in China, while remaining vulnerable to the consequences of the trade war. Among the losers of the dispute:
ENERGY COMPANIES
The energy values of the S & P 500 plunged 10.2% since a little before Trump sends his tweet of August 1, the worst decline of the 11 sectors in the index.
National Oilwell Varco, for example, is based in Houston and derives most of its revenue from the supply of drilling technologies and other technologies in the United States, Saudi Arabia, Brazil and Norway. But its stock has fallen by nearly 22%, seven times the loss of the S & P 500 as a whole.
This is largely due to the fact that the price of oil has fallen because the trade war is going to cause lasting damage to the global economy. If this happens, countries around the world will have less need to burn oil. US benchmark crude oil prices fell nearly 8% on August 1st, its worst day in four and a half years.
BANKS
Financial stocks have been the second worst performing sector of the S & P 500 in recent weeks, with the prospect of less profitable loans threatening bank profits.
Comerica, for example, has been drawn into a downward trend in the industry. He is based in Dallas and has bank branches primarily in Arizona, California, Florida, Texas and Michigan. Some companies operate out of the country, but in Canada and Mexico, not in China. Its stock fell by 16.2% in the recent resumption of trade tensions.
The escalation of the trade war has led a growing number of economists and analysts to warn of a possible recession. And these concerns have spread to the bond market, where interest rates have fallen sharply.
The interest rate market has become extremely difficult this month because of fears of a possible recession, namely that long-term Treasury yields are sometimes lower than short-term returns. This is a problem for a sector that has to borrow money at short-term rates, lend it to long-term rates and pocketing the difference.
MICROCHIP COMPANIES
Companies that manufacture microchips in laptops and other electronic devices have been one of the biggest victims of the trade war because of their dependence on China.
Take Micron Technology, which made more than 57% of its sales in China during its last fiscal year. In addition, China needs China for the rare earth minerals found there, and it also has important manufacturing activities in the country.
Micron dropped 2.9% on August 1st, when Trump announced that it would extend tariffs to products including laptops and mobile phones. It was more than triple the loss of the S & P 500.
Since Trump's 2018 tweet that "trade wars are good and easy to win", Micron is down 8.5%, while the S & P 500 index is up 7.9% .
INDUSTRIAL ENTERPRISES
Since Trump started trading with China in 2018, the market has reacted by selling large industrial companies whenever tensions rise. The temptation is logical given the globalization of companies, but it can be wrong, said Stephen Volkmann, equity analyst at Jefferies, which covers industrial and machinery companies.
"Whenever there is a tweet, I get a call and ask," How does this affect the CAT? "Volkmann said, using the Caterpillar heavy equipment manufacturer's symbol. "The cat tends to do what he sells where he sells it."
This means that many of its products do not necessarily have to cross borders before being sold, which allows them to protect themselves from the effects of tariffs. Other industrial companies have also already absorbed tariffs and passed on the costs successfully to their customers. But "it's kind of like shouting in the wind so we pay attention to everyone," Volkmann said.
When asked if one of the industrial companies he is following is much more vulnerable than others because of the next price bracket, he has a hard time naming one in particular.
"The most important part is: are we going into recession because of them?" he said. "If it's true, it's true for all my businesses."
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