5 Chinese Stocks To Keep Rallying, Trade War Wraps Up Or Not

 | Dec 30, 2019 08:21PM ET

It has been more than a year and half since the Trump government chose to impose tariffs on the import of a wide array of products. The initiative — taken to promote manufacturing in the country and to curb export expenditure — gradually evolved into a full-blown trade war with foreign trade partners, especially China.

Both countries as well as the global economy are presently grappling with the impacts of the trade war. While the U.S. corporate margins have been hit hard as tariffs have inflated cost of raw materials for many products, the China economy has also lost businesses over time. Additionally, aging population, the scarcity of skilled workforce and debt burdens have been hurting China’s economy.

Notably, the U.S. exports to China decreased 13.6% year over year in the first nine months of 2019. Also, the U.S. imports from China fell 14.4% during the same timeframe. The U.S. GDP increased 2.1% in the third quarter of 2019, while China’s GDP exhibited lowest year-over-year growth of 6% since the first quarter of 1992.

Additionally, the International Monetary Fund has softened its outlook on growth prospects of the global economy. In its October release, the institution lowered the world output growth forecast by 20 basis points (bps) to 3% for 2019 and by 10 bps to 3.4% for 2020. The 2019 projection is lower than 3.8% growth registered in 2017.

The growth projection for the U.S. economy has been lowered by 20 bps for 2019, while increased by 20 bps for 2020. The growth forecast for China economy has been lowered by 10 bps and 20 bps for 2019 and 2020, respectively.

Tariffs That Sparked the Trade War

In February 2018, the U.S. government implemented 30% tariffs on all imports of solar panels and 20% on import of washing machines. Notably, the solar panel imports excluded Canadian transactions.

In March 2018, the U.S. government decided on the imposition of tariffs on import of China aerospace, machinery and information communication technology products. It also imposed 25% tariffs on steel and 10% tariffs on aluminum imports.

These steel and aluminum tariffs attracted retaliatory measures by China in the form of tariffs on a wide array of products, including steel pipes, fruits, pork, wine, soybeans, recycled aluminum, chemicals, automobile and others.

Thereafter, initiatives to revise the product lists (the U.S. brought consumer products, textiles, construction materials, electronic equipment, automotive parts, agricultural products and other product categories under the tariff brackets) and tariff rates followed.

In May 2019, the U.S. government increased tariffs on a series of China imports from 10% to 25%. It also placed some restrictions (some revisions were made later) on export to China telecommunications giant, Huawei Technologies Co. Ltd.

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Few Remedial Steps

Since the implementation of tariffs, a series of deliberations between the two countries to ease the tensions ended in no results.

To ward off some tensions, the U.S. government extended subsidies to its farmers. In December 2019, the U.S. government reached a phase-one trade deal with China that will likely help in easing some tariff-related woes. This deal will ease U.S. restrictions on import of China consumer goods, while China on its part will increase the purchase of U.S. products (especially agricultural products) in the coming years.

Additionally, the China government lowered taxes on corporations and businesses to ward off some of the tariff pressures. Further, currency devaluation has been done to make China products cheaper.

Despite the trade war, stock market performance in China has been quite promising. In the past year, the country’s major stock exchange, Shanghai Composite Index, gained approximately 22%. It lost roughly 28% in 2018.

Below we present five China stocks that have performed impressively in the past year and also exhibit growth prospects.

5 Promising China Stocks

These promising stocks can be of interest to investors seeking exposure in the China stock market.

Past-Year Price Performance Chart