Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

Hong kong & china / Thematic (Sector/Industry)

<div class="content-highlight"><p style="text-align: center;">Hong Kong &amp; China stock opportunities amid the volatility</p></div><hr><p style="text-align: left;">The risk of an escalating global trade war harming growth is likely to weigh on share prices until there is some abatement in the threats to lift tariffs on exports. Although we see limited impact to China's GDP growth, the escalation may raise the risk the government will step in to pump prime the economy at a time when debt levels are already high. While the majority of the China companies we cover are more domestically focused, we would not be surprised to see some margin pressure especially if sales turn inward and competition rises within China. Nonetheless, on market dips, we see opportunities to buy select Hong Kong and China names whose earnings should be relatively insulated from the escalating trade tension. </p><hr><h2>Key Takeaways</h2><ul>
<li>Impact to China GDP growth is likely to be less than 1% even with the latest Trump administration plan to extend tariffs on USD 200 billion worth of China imports. While risk rises, we think the Hong Kong and China stock markets are still reacting to fear and uncertainty rather than the direct impact.  </li>
<li>While there are threats on additional tariffs, we think China is more likely to retaliate via targeted policies. We would not rule out some face-saving negotiation to appease both countries. </li>
<li>Immediate impact on exporters is unlikely as it will take time to find alternative suppliers. However, we would not be surprised to see some pressure on margins especially if exporters are willing to absorb some of the increased costs from tariffs to their customers. </li>
<li>We see little risk to the companies we cover as the majority have limited U.S. export exposure. In addition, we already factor in slowing growth in China. We see this as an opportunity to add China's domestic service providers, which have a greater earnings buffer relative to manufacturers, to holdings. </li>
</ul><p><em>Analysts: Lorraine Tan, CFA and Iris Tan, CFA</em></p>

Hong Kong &amp; China stock opportunities amid the volatilityThe risk of an escalating global trade war harming growth is likely to weigh on share prices until there is some abatement in the threats to lift tariffs on exports. Although we see limited impact to China's GDP growth, the escalation may raise the risk the government will step in to pump prime the economy at a time when debt levels are already high. While the majority of the China companies we cover are more domestically focused, we would not be surprised to see some margin pressure especially if sales turn inward and competition rises within China. Nonetheless, on market dips, we see opportunities to buy select Hong Kong and China names whose earnings should be relatively insulated from the escalating trade tension. Key Takeaways
Impact to China GDP growth is likely to be less than 1% even with the latest Trump administration plan to extend tariffs on USD 200 billion worth of China imports. While risk rises, we think the Hong Kong and China stock markets are still reacting to fear and uncertainty rather than the direct impact.  
While there are threats on additional tariffs, we think China is more likely to retaliate via targeted policies. We would not rule out some face-saving negotiation to appease both countries. 
Immediate impact on exporters is unlikely as it will take time to find alternative suppliers. However, we would not be surprised to see some pressure on margins especially if exporters are willing to absorb some of the increased costs from tariffs to their customers. 
We see little risk to the companies we cover as the majority have limited U.S. export exposure. In addition, we already factor in slowing growth in China. We see this as an opportunity to add China's domestic service providers, which have a greater earnings buffer relative to manufacturers, to holdings. 
Analysts: Lorraine Tan, CFA and Iris Tan, CFA

Escalating US-China Trade War Raises Risks; but Our View Remains that Cooler Heads Will Prevail