Chinese stocks – What’s market pricing in and how would it react to tariff hikes

Investing.com -- The equity market has reacted to the latest U.S. tariff hike on Chinese goods with a 3% decline in MSCI China, in line with historical trends. UBS estimates that the additional 20% tariff would reduce aggregate earnings for affected Chinese firms by 0.3%, or 0.2% for the overall universe.

Markets historically did not price in tariff hikes ahead of announcements, and future increases could trigger further declines. In 2018, equities dropped by an average of 2% when new tariffs were introduced. The possibility of a global tariff scenario has increased, with retaliatory measures targeting U.S. imports.

Sectors most at risk include machinery, pet products, sportswear OEM, biotech, and tech hardware. While export-oriented sectors generally underperformed in 2018, medical equipment was an exception due to government incentives. In the current cycle, these sectors, excluding tech hardware, have already de-rated relative to MSCI China year-to-date.

Secondary impacts, such as reduced confidence and lower business investment, could have a more meaningful effect on earnings than direct tariff costs. If domestic policy measures fully offset the impact, they could provide greater support to listed firms given their exposure to domestic markets.

 

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