The moment European investors have been waiting for is finally here as presidents Donald Trump and Xi Jinping meet at the Group of 20 summit.
The recent flare-up in the trade spat cost the Stoxx Europe 600 Index almost $1 trillion as sectors ranging from automobiles to miners and luxury goods retreated amid fears of reduced Chinese demand, which could result in a global slowdown.
Trump said on Wednesday substantial additional U.S. tariffs would be placed on goods from China if there’s no progress on a trade deal.
“To us, it’s still a trade conflict not a trade war and we estimate a gradual de-escalation,” Stefan Kreuzkamp, chief investment officer at DWS, said at an event on Tuesday. “While we do not expect them to bury the conflict forever during the G-20 meeting, a little relaxation can be expected.”
European stocks have been recovering this month on optimism about softer monetary policy, however traders are searching for new impetus to keep the rally going.
“In the near-term, investor mood largely hinges on the G-20 meeting,” said Daniel Kern, chief investment officer at TFC Financial Management in Boston, which oversees about $1 billion.
“I wouldn’t say I’m optimistic about the G-20 meeting, but I’m reasonably optimistic that there will be a dampening of tensions between the U.S. and China and the electoral calculus in the State is really going to be the driver of things,” Kern said by phone.
Here are the sectors to watch for reactions from the G-20 meeting:
European carmakers, especially German ones, are the first sector that comes to mind when talking about trade disputes, due to their global distribution network. Sales to China might be affected by any negative impact from trade on the Chinese economy. At the same time, any agreement, positive or negative, between the U.S. and China might be a blue print for further negotiations between Brussels and Washington. Watch Volkswagen AG, which sold about 40% of its vehicles in China last year, as well as Daimler AG and BMW AG, whose China sales account for 20% each.
Technology is another topic at the heart of trade discussions as the U.S. is trying to limit the technological rise of China, according to DWS strategists. While China is producing more electronics itself, the country is still a net importer of various types of electronic parts and components, such as chips and semiconductors. Any trading restrictions are potentially disruptive and may affect suppliers in Europe. Look out for share reaction in Dialog Semiconductor Plc, STMicroelectronics NV and Infineon Technologies AG.
European miners are some of the most sensitive stocks to any China trade news since the nation’s economic health has a significant effect on global metal prices, including copper, iron and steel. Watch BHP Group Plc, which derives more than half of its revenue from China, and Rio Tinto Plc, which gets 45% of sales from the country.
4 & 5} Luxury Goods, Alcohol
The resilience of big Chinese spenders is key to the financial success of upscale European fashion and alcohol brands. LVMH Moet Hennessy Louis Vuitton SE is seeing “unheard of growth rates” in China, according to Citigroup Inc., and the Asian nation is a key market for cognac maker Remy Cointreau SA.
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