Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Investors Are Downplaying ‘Immense’ U.S.-China Damage, Jefferies Says

Published 2019-05-17, 07:33 a/m
Updated 2019-05-17, 05:20 p/m
Investors Are Downplaying ‘Immense’ U.S.-China Damage, Jefferies Says

Investors Are Downplaying ‘Immense’ U.S.-China Damage, Jefferies Says

(Bloomberg) -- Global equity investors are likely underestimating the damage from the U.S.-China trade dispute, Wall Street analysts say.

With the Trump administration putting Huawei Technologies Co. and dozens of its affiliates on an export blacklist , “the U.S. government has halted China’s 5G push,” transforming the trade war “into a digital one,” Sean Darby, Jefferies’s chief global equity strategist wrote in a note. And it’s likely to have ramifications beyond the tech sector as well, analysts at MKM wrote.

“The progression from tariffs to direct actions against single Chinese companies and their inter-linked supply chains has a wide-ranging impact on profitability that investors will find difficult to quantify,” Darby warned.

The Huawei ban “holds back the development of 5G (the largest global capex project) and the growth of Internet-of-things,” he said. It also “completely disrupts the global tech supply chain. The macro and micro implications are immense.”

Darby noted that 5G provides a “huge advantage” for “everything from the use of autonomous vehicles to AI eco-systems,” while “enormous amounts of money” are also required to install fiber-optic and operating systems.

China has been a 5G technology leader, but Chinese companies have an Achilles heel -- their reliance on U.S. semiconductors and components with no alternatives, he said. Those include baseband chipsets for handsets, from Qualcomm (NASDAQ:QCOM) Inc. and Intel Corp (NASDAQ:INTC).; semiconductors for base stations, from Xilinx Inc (NASDAQ:XLNX).; RF/power amplifier chipsets, from Skyworks (NASDAQ:SWKS) Solutions Inc., Qorvo Inc., Avago Technologies Ltd. and Macom Technology Solutions Inc., and optical components, from Lumentum Holdings Inc. and Finisar Corp.

The Huawei blacklist “is a very important development and we suspect it has fallen through the cracks,” Cowen senior policy analyst Chris Krueger wrote in a note. He said that “a framework has now been put in place that could be extremely broad, disruptive, and restrictive.”

He sees the Commerce Department’s license process as “likely to take some time,” and suspects “nearly all requests will be denied.” He added that talks in Beijing with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are still unscheduled.

“It is very hard to see any off ramps before the June 28 Trump-Xi meeting in Japan at the G-20,” Krueger said. “A few more weeks like we had this week and that meeting may not even materialize.”

Earlier, China’s state media signaled a lack of interest in resuming trade talks, while the government said stimulus will be stepped up to buttress the domestic economy. That helped send U.S. index futures and European stocks lower. Qualcomm is dropping 1.9% in pre-market trading Friday, while Intel is down 0.5%, and the exchange-traded fund that tracks the Philadelphia Semiconductor Index fell 1.4%.

On Friday morning, Acacia Communications Inc. said it plans to fully comply with the Commerce Department’s Huawei order. As sales to Huawei have been less than 1.5% of total revenue, it sees a “de minimis impact” from losing those sales in the second quarter. But Acacia cautioned that “developments or regulatory actions against Huawei may have a broader impact on overall conditions” in its markets.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.