Stock picks for the Trump era: winners and losers

Companies in trading, telecommunications, car assembly, ports and airlines are likely to be the hardest hit when Donald Trump becomes the 45th president of the United States next week, as they stand to feel the brunt if he makes good on his campaign pledges to tax imports and relocate jobs back to America, analysts said.

Banking and finance are likely to be the biggest winners as the US Federal Reserve has foreshadowed three interest rate increases this year. Construction companies, builders will benefit from any investments in public works or infrastructure, while suppliers of commodities and resources may gain from any roll-back in environmental impact regulations, analysts said.

“Trump swept to victory promising to boost growth through tax cuts, public spending and deregulation,” said Pictet Asset Management’s senior investment manager Shaniel Ramjee, in an interview with the South China Morning Post. “In a rising rate environment, banks and insurers will continue to do well. I’ll be cautious on heavy borrowers of US dollar or Hong Kong dollar, as the yuan’s depreciation will mean rising financial burden.”

Trump, who rode to electoral victory on a wave of anti-establishment populism instead of his interest or grasp of public policies, will bring a new approach to policy making. That’s putting analysts and economists on edge to assess how his campaign pledges may translate into policies, and how these will impact how the world does business or trade with the largest global economy.

JPMorgan’s Asia Trump Policy short basket index tracks 30 of Asian stocks most likely to be hit by Trump’s trade policies, comprising companies based in Taiwan, mainland China, Hong Kong, South Korea and Australia.

IT companies, especially those involved in the manufacturing of consumer hardware such as Asustek Computer, Foxconn Technology Co, as well as semiconductor chip foundries like Taiwan Semiconductor Manufacturing Co., will be the hardest hit, said JPMorgan’s chief emerging markets and Asia equity strategist Adrian Mowat.

“Our conclusion is to be underweight in South Korea, Taiwan and Indian IT companies, Indian healthcare and selected exporters to the US,” Mowat said. “We believes these sectors could underperform as investors become more aware of Trump’s trade policies.”

If Trump’s protectionist policies lead to a tit-for-tat series of retributions and trade disputes with China, the impact will be to shrink global commerce, which will hurt port operators, shipping and logistics companies such as Hong Kong-based Li Fung Ltd., China Merchants Port Holdings Co., and Cosco Shipping Ports Ltd.

“Li Fung helps US brands source manufactured products globally and exports to the US, while Techtronic Industries Co., Yue Yuen Industrial Holdings and Prada SpA manufacture in Asia to export to the US,” he said.

To be sure, not everybody believes Trump is anti trade per se.

“Trump wants to have a trade relationship with China that creates US jobs while helping US companies gain wider access into the Chinese markets,” said Mark Mobius, executive chairman of the Templeton Emerging Markets Group, with US$26 billion in assets under management, in a phone interview with the Post.

“Even if Trump does introduce any change to the tax rules or trade agreement, it won’t happen immediately as change needs a long process,” said Mobius, who had been investing in China since 1987. “The market doesn’t need to worry too much in the near term.”

China’s technology, consumption and retail industries will enjoy a lot of growth in the coming year during Trump’s presidency, he said.

“The Chinese stocks that investors should avoid are the companies that only conduct trading between China and the US. They may face trade restrictions by the US,” Mobius said.

Trump’s plan to bolster US infrastructure spending may benefit China’s producers of commodities and materials, said HSBC global asset management’s senior market specialist Grace Tam.

“The US$1 trillion of incremental infrastructure investments over the next 10 years will potentially boost copper demand by roughly 400,000 tonnes,” she said.

“Financials are also beneficiaries. The steepening of yield curve should drive an improvement in the banks’ net interest margins. Given the spike in long-term yield, higher re-investment yield will likely boost insurers’ investment gains, lessen the burden on earnings from lowering reserve charges and easing concern over high guaranteed rate products,” Tam said.

Still, Trump’s economic policies may bode ill for Asian exporters that are dependent on the US market, said Standard Life Investments senior emerging markets economist Alex Wolf.

The economic policies of the incoming president may lead to a strong US dollar and a weaker yuan, which in turn may help to boost Chinese exports to other markets in Asia and Europe, he said.

Tax cuts and other job creation policies may boost economic growth and inflation, which will be beneficial for Hong Kong’s banks and insurers, said CIC Investors Services’ head of investment solutions Edmund Yun.

“Internet sector will continue to benefit from broader usage from consumers and participants. Energy sector will gradually doing fine as Trump’s policy will favor this sector as well,” Yun said.

Given that the likelihood of tariffs of the exporters, Yun said his firm will prefer investing stocks whose earnings generated domestically such as pharmaceutical sector.

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