President Xi Jinping’s promise in his speech at the Boao Forum on Tuesday to lower tariffs on vehicles imported into China is a “fresh ray of hope” for Asian automakers, particular for Japanese and South Korean players, Societe Generale said.
“Japanese and Korean automakers have been reeling from the slowdown over the past two years in the U.S. auto market, which is key for both,” the bank said in a note on Tuesday.
“The opening up of the auto sector in China – the largest market in the world – could infuse fresh blood into the auto and auto component sectors in both countries, which have seen auto stock valuations de-rate due to sluggish export markets. Growth in China could more than offset deceleration in the U.S. and drive a re-rating of the Asian auto sector,” it added.
It said that Japanese automakers, which are trading at “deep value,” are well-positioned to benefit from China opening up and they are “best placed” to meet the increasing preference for SUVs and luxury cars on the mainland.
For South Korean automakers, Societe Generale said that this could be a turnaround year after a double whammy from a slower U.S. auto market and declining China sales over the THAAD deployment.
“We think the worst is in the past for Korea, with consensus profit growth poised to return to the positive territory but valuations still only in line with historical averages,” it said.