Will a Trade War With China Hurt Tech Stocks?
The technology sector has been one of the S&P 500’s best-performers, up 14 percent year-to-date, and until now, tech appears mostly unscathed by the rattling of trade war sabers between the U.S. and China.
But what’s the likelihood this could continue? Parts of the U.S. technology sector rely on Chinese manufacturing and if trade war rhetoric continues to escalate, will investors start to change their mind on technology?
Maybe, say market watchers. But there are other factors that could singe the wings of the high-flying sector that have little to do with the trade disputes.
Not trade war, but not trade peace. Amanda Agati, co-chief investment strategist at PNC Financial Services Group in Philadelphia, says PNC doesn’t believe a trade war between the U.S. and China will occur, despite the heightened rhetoric, tariffs and counter-tariffs imposed by the two countries. But that doesn’t mean they’re dismissive of what’s happening.
“I always joke with people that it’s not a trade war, but it’s not trade peace either,” she says. “We don’t think that this is going to die down anytime soon necessarily, but we also think that it will stop short of a full-blown trade war.”
Eric Schoenstein, portfolio manager of the Jensen Quality Growth Fund at Jensen Investment Management in Lake Oswego, Oregon, says it’s hard to gauge what what’s going to happen.
“Part of the difficulty with the tariffs and trade wars is to what extent that might be a negotiating tactic to force people to come to the table,” he says.
Agati says for now the U.S. tariffs against China appear focused more on the raw material side, versus finished components such as parts for smartphones like Apple’s (ticker: AAPL) iPhone.
“That does keep a lot of technology companies out of the fray a little bit,” she says. “The question is whether the rare-earth minerals component that goes into all these various complex product side would be impacted and I don’t know the answer to that.”
That could change if the White House follows through on its threat to place tariffs on all Chinese imports to the U.S., which President Donald Trump said he might do. So far the U.S. has imposed tariffs on $34 billion of Chinese goods and China has done the same on U.S. imports.
Schoenstein adds there is the potential for tariffs to have to have an impact on companies that manufacturer overseas, but at the same time there’s also some inherent resilience with some of the larger tech players since their manufacturing isn’t concentrated in China.
Jeremie Capron, director of research at ROBO Global exchange-traded fund in New York, says China won’t put any tariffs on any U.S. tech sector companies like semiconductors “because that would be like shooting yourself in the foot.”
The sector has priced in some uncertainty over what’s happening with the tariffs on both sides, but he says the movements suggest it’s more about uncertainty than outright concerns about companies’ fundamental health……Read more>>