Improving prospects of a trade deal between the U.S. and China could sharply boost a number of stocks whose companies are heavily dependent on sales from China. Goldman Sachs sees industries ranging from technology and power solutions to gaming and dining benefitting as the world’s two largest economies work to sort out their trade issues and resolve the ongoing trade war, according to Business Insider.
Ten of those stocks, along with the percentage of their sales from China, include Yum China Holdings Inc. (YUMC) at 100%, Wynn Resorts Ltd. (WYNN) at 75%, Qualcomm Inc. (QCOM) at 67%, Las Vegas Sands Corp. (LVS) at 62%, Monolithic Power Systems Inc. (MPWR) at 57%, Micron Technology Inc. (MU) at 57%, Qorvo Inc. (QRVO) at 57%, Broadcom Inc. (AVGO) at 49%, IPG Photonics Corp. (IPGP) at 44%, and Advanced Micro Devices Inc. (AMD) at 39%.
“If the outcome of the G20 meeting eases trade tensions and the market-implied probability of a trade deal rises to 100%, the S&P 500 P/E multiple could expand by 1x, to 18x,” David Kostin, Goldman’s chief U.S. equity strategist, wrote in a note to clients as world leaders were gathering at the summit in Japan. “Info Tech, particularly Semiconductors, and stocks with high China sales exposure will likely be the biggest beneficiaries.”
What It Means for Investors
The semiconductor and semiconductor equipment industries are likely the most at risk to the ongoing U.S.–China trade conflict, as they have the highest sales exposure to China at 52 percent. That means that in the event that the two countries reach a trade deal, stocks like Qualcomm, Micron, Qorvo, Broadcom, IPG Phototonics, and Advanced Micro Devices could soar on rising investor confidence that sales will continue to grow unhindered.
Another industry to gain from a trade deal is the casino gaming industry. Nevada-based high-end hotel and casino operator Wynn Resorts while owning properties in Las Vegas also has locations in Macau, the small autonomous region on the south coast of China known for its giant malls and casinos. The company has a greater sales exposure to China than any other U.S. company with a market cap larger than $3 billion, according to CNBC.
So far, Wynn has been resilient in the face of mounting trade tensions. Its shares have soared 33% since the start of the year and received an added boost on Monday as the company’s year-over-year Macau gaming revenue rose 5.9% in June. A trade deal could send those shares even higher.
Las Vegas Sands also has significant property holdings in Macau. The company’s shares tumbled 18% partly on fears of the escalating trade conflict. While the stock has bounced back recently, it is still down as much as 13% since highs reached in the summer of 2018. A future trade deal that helps lift the stock back to those highs represent presents significant potential upside.
Markets are taking the recent meeting between U.S. President Donald Trump and Chinese President Xi Jinping at the G-20 summit as a positive sign, but that optimism could be short lived without an official signed trade agreement between the U.S. and China. If the trade war is prolonged, leaving tariffs in place, or worse, tensions re-escalate, expect stocks to plunge.
“While on the surface the G-20 outcome appears positive and poised to give risk assets a short-term boost, the agreement did not by itself signal any major breakthrough in resolving the fundamental trade conflict,” Patrick Wacker, a fund manager for emerging-markets fixed income at UOB Asset Management in Singapore, told Bloomberg.