After a three month truce, the US-China trade war has escalated again. President Trump reignited the fire by announcing that the US will increase tariffs on US$200 billion worth of Chinese imports to as much as 25% from 10%.
China retaliated by increasing tariffs on US$60 billion worth of American imports to between 20% and 25% from the previously imposed 10%.
In response, the US has released a list of around US$300 billion worth of Chinese imports that could face a 25% tariff. This would encompass almost all Chinese imports into the US. President Trump is not backing down, saying, “I love the position we’re in, taking in billions of dollars in tariffs.”
However, economists were not so positive, with some predicting that household expenditure could go up by some US$800 per month, and could threaten American jobs and the growth of the global economy.
Market participants have also grown more cautious, with the S&P 500, a widely followed US stock market barometer, falling more than 2% on Monday, the day after China retaliated.
While the trade war between China and the US will have a direct impact on companies that rely on trade and operate specifically in those countries, there are plenty of spillover effects that could impact companies outside of their jurisdiction.
With all that said, here are three types of companies that are listed in Singapore that could be potentially affected by the escalating trade war.
The Singapore stock market is home to some manufacturing companies that have factories in China with some of its major customers from the United States. This puts it directly in the crossfire of the trade wars.
Depending on the relationship that these companies have with their customers, they may be forced to reduce their price or US customers may look for suppliers from other countries.
In addition, manufacturing companies in Singapore that rely on China customers will be hit if demand from China decreases.
Banks are highly susceptible to the changing market sentiment to the economy. The more positive the outlook, the more likely companies are willing to take on debt to grow their business, which is great for banks.
At the same time, a better economy means that companies are less likely to default on their loans.
The US-China trade war will negatively impact global market sentiment and economic growth, which could dampen bank returns.
REITs with exposure to China
Another possible listed entity that could be impacted by the trade wars are REITs with properties in China. For instance, some retail REITs in China are reliant on tenant sales. Slowing Chinese economy due to the trade war could impact Chinese consumer sentiment and decrease tenant sales, thereby decreasing rental income for these REITs.
In addition, the weakening of the Chinese Yuan could also impact Singapore-dollar denominated distribution to unitholders.
Maximise dividends on your REITs with our brand-new Complete Guide To Buying The Best Singapore REITs. We reveal everything we think you need to know about finding the best REITs that hands you a fat dividend cheque ...even if you have no REITs experience at all! Get instant access to your 100% FREE, actionable, 42-page PDF guide here.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore writer Jeremy Chia does not own shares in any companies mentioned.