Asian markets have been weighed by the “increasingly dire narrative” over the U.S. trade war escalation, but with U.S. President Trump set to meet with China’s President Xi Jinping, some shares could rally, Nomura said.
Xi and Trump are set to meet at the G-20 meeting in Buenos Aires later this week, and optimism that at least a face-saving, if unsubstantive, agreement would emerge was running high among analysts. That was in part due to a South China Morning Post article last week, citing a source with knowledge of the matter, that hardline White House adviser Peter Navarro wasn’t on the guest list, a development which suggested cooler heads might prevail.
When it comes to the meeting outcome, “it does not have to be material, but it might just be enough to provide stocks with a reason to rally
(even if it is short term),” Nomura said in a note on Tuesday. “We would be looking to add stocks that have a lot of trade-related negativity priced in.”
It tipped 18 stocks in the region that might climb more than the broader market if the easing-trade-tension theme plays out.
The list is dominated by tech plays, despite a fundamentally cautious view on the handset supply chain and memory makers, Nomura said.
“The link between trade tariffs and many tech players is tenuous, and driven by sentiment rather than actual exposure. Nevertheless we think that positive news on the trade front could result in some of these beaten down stocks rallying on better sentiment,” it said.
While handset-supply-chain companies also face slower demand, Nomura tipped the segment for playing the trade theme. It said it preferred Android exposure as it was closer to the bottom than Apple.
Sunny Optical Tech and O-Film Tech fit the theme, Nomura said, adding that while Parade Technologies bypasses the handset-slowdown trend, it has faced concerns notebooks might be included in tariffs.
It tipped Hua Hong Semiconductor in the non-memory space, and the two largest surveillance systems companies globally, Hangzhou Hikvision Digital and Zhenjiang Dahua Technology, which have China plants using high U.S. semi-conductor content.
For tech hardware, it tipped Taiwan-listed Ennoconn, Bizlink Holding and Taiwan Union Technology, while in the optical modules segment, it pointed to Zhongji InnoLight and Accelink Technologies.
Among other shares that might rally on easing trade tensions, Nomura pointed to Singapore’s banks as “unusual suspects,” as they’ve been affected by their high gearing to trade finance and China exposure.
It tipped DBS, noting its China exposure was at 31 percent of loans.
It also noted shares of Genting Singapore have been “caught in the crossfire,” despite solid earnings, amid a selloff in Macau gamers on expectations the trade war would weigh on demand.
Nomura also pointed to the petrochemical sector as potentially gaining on easing trade tensions, as China, the world’s largest polyethylene
and polypropylene importer, has seen stagnant import growth amid trade uncertainty.
The investment bank tipped Lotte Chem, LG Chem, Formosa Plastics and Siam Cement as potential beneficiaries.
It also pointed to Hong Kong-listed WH Group, which has been seen its both its U.S. and mainland operations hurt by China’s tariffs on U.S. pork products