Analysis suggests that, in response to potential tariff shocks, it may be appropriate to adjust the exchange rates of the Renminbi to cope, and it is recommended to avoid some heavy asset enterprises. Potential tariffs may lead to a contraction in external demand, prompting a stronger focus on stimulating domestic demand, potentially elevating consumer to an unprecedented level in financial stimulus.
First, the 'Trump trade'.
(1) Imposing tariffs affects China's exports. Therefore, we advise on the export chain risks. If Trump takes office, to avoid sudden tariff impacts on exports, it is recommended to avoid over-reliance on American export industry chain symbols. We are concerned that there may be negative sentiment trading in the export chain in November, as current exports are still based on performance fundamentals and do not fully reflect the expectation of tariff increases.
Looking ahead, even if export companies' performance increases, we are also concerned that the market may give relatively low valuations to export companies from a long-term discounted perspective, leading to more stringent evaluations of export companies.
(2) It is expected that the US deficit will increase, US inflation expectations will strengthen, and there is uncertainty about the speed and pace of US interest rate cuts, making the domestic interest rate cut progress unclear. Therefore, we are reducing pure technology thematic investments benefiting solely from monetary easing. We believe that the upside potential for thematic stocks purely benefiting from monetary easing is limited.
(3) The expectation of a rise in US stocks is strengthening, which to a certain extent is unfavorable for foreign investors' long-term flow of funds into Chinese assets.
Second, dealing with the 'Trump trade'.
(1) In response to potential tariff impacts, it may be appropriate to make moderate adjustments to the RMB exchange rate, so we recommend avoiding some heavily asset-based enterprises.
(2) Potential tariffs may lead to a contraction in external demand, prompting a greater focus on stimulating domestic demand domestically, with consumer possibly rising to unprecedented levels in financial stimulus. Therefore, we are increasing consumer allocations. Whether considering achieving this year's economic goals or addressing possible contraction in external demand, the future direction of financial stimulus will lean more towards internal demand, further boosting consumer sentiment from a policy perspective.
Moreover, from an economic fundamental perspective, we believe that the GDP in the third quarter of this year should be the annual low point. With the consideration of low base effects and policy stimuli in the fourth quarter, the economy will further rebound. Combined with the localization of debt to enterprises and households, this is conducive to further unleashing the consumer potential of residents.
Author of this article: Chen Li, Chen Meng, Source: Chen Lichen, Original Title: "The 'Trump Trade' and Dealing with the 'Trump Trade'"
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