Analysis suggests that in response to potential tariff shocks, a moderate adjustment of the RMB exchange rate may be used, and it is recommended to avoid certain heavy asset companies. Potential tariffs could lead to a contraction in external demand, and domestically there will be a greater emphasis on stimulating internal demand, with consumption potentially elevated to an unprecedented level due to fiscal stimulus. It is expected that the U.S. deficit will increase, inflation expectations will strengthen, and the pace of domestic interest rate cuts remains unclear, so it is advised to reduce investments in technology themes that solely benefit from monetary easing. Future fiscal stimulus will be more focused on internal demand, and it is anticipated that the economy will further rebound in the fourth quarter
1. "Trump Trade"
(1) Increase tariffs, affecting Chinese exports. Therefore, we highlight the risks in the export chain. If Trump comes to power, to avoid the sudden impact of tariffs and exports, it is recommended to avoid excessive reliance on U.S. export industry chain targets. We are concerned that there will be negative sentiment trading in the export chain in November; currently, exports are still based on performance fundamentals and have not fully reflected the expectations of increased tariffs.
Looking ahead, even if export companies see performance growth, we worry that the market will undervalue export companies from a long-term discount perspective, leading to harsher evaluations of export companies.
(2) Expect an increase in the U.S. deficit and a strengthening of U.S. inflation expectations. The speed and pace of U.S. interest rate cuts are uncertain, making the domestic interest rate cut progress unclear. Therefore, we reduce investments purely benefiting from monetary easing in technology themes, as we believe the upside potential for stocks that solely benefit from monetary easing is limited.
(3) The expectation of a rise in U.S. stocks is, to some extent, unfavorable for foreign capital flowing into Chinese assets.
2. Responding to the "Trump Trade"
(1) In response to potential tariff shocks, there may be a moderate adjustment in the RMB exchange rate, so we recommend avoiding some heavy asset companies.
(2) Potential tariffs may lead to a contraction in external demand, and domestically there will be a greater emphasis on stimulating internal demand, with consumption potentially elevated to an unprecedented position amid fiscal stimulus. Therefore, we increase our allocation to consumption. Whether considering the completion of this year's economic targets or responding to potential external demand contraction, future fiscal stimulus will lean more towards internal demand, promoting further recovery in consumption from a policy perspective.
Additionally, from an economic fundamental perspective, we believe that the GDP for the third quarter this year should be the low point for the year. Considering the low base effect and policy stimulus in the fourth quarter, the economy will further rebound, and with localized debt reaching enterprises and households, it will help further unleash residents' consumption potential
Article authors: Chen Li, Chen Meng, Source: Chen Li lichen, Original title: "The 'Trump Trade' and How to Respond to the 'Trump Trade'"