Investors, watch out: new tariffs that kicked in on Sunday will hit Chinese companies that export things like furniture and smartphone components, as well as exporters of pork from the US like Hong Kong-listed WH Group. Manufacturing stocks that will feel the sting include furniture maker Man Wah Holdings, analysts say, while technology stocks that could feel the latest tariff punch include Sunny Optical, ZTE and ASM Pacific Technology. “At each round of escalation in the US-China trade war, whether that is new retaliatory tariffs or new sanctions proposals … investors are growing more and more uncertain. There does not appear to be an off ramp to this path of continued escalation,” said Hannah Anderson, global market strategist at J.P. Morgan Asset Management, adding that negotiations are unlikely to see much progress as both sides keep hardening their views. “This uncertainty is having the most damaging effect on markets. It constrains investment, slows growth, elevates volatility, and darkens the outlook for investors of all stripes,” she said. “We will likely continue to see downward price action at the announcements of new measures.” The US and China suddenly escalated their trade war, which already put an end to this year’s big run-ups in stocks traded in Hong Kong and on the mainland. Though market reaction to continual bouts of tension flare-ups has started to become more muted, according to analysts, the latest round of tariffs – to be followed by more on December 15 – pose tricky challenges. “It is a little bit tough for investors because it is tit-for-tat every time and basically depends on what Donald Trump says overnight,” said Kevin Leung, executive director of investment strategy for Haitong International Securities. Starting from September 1, President Donald Trump imposed a 15 per cent tariff on an additional tranche of goods that will ultimately cover a further US$300 billion of Chinese goods exported to the US later this year. The new additions, which mean that effectively all Chinese exports to America are tariffed after December 15, were in response to Beijing’s retaliatory decision to place a 10 per cent tariff on US$75 billion worth of American products. The US is targeting Chinese goods like televisions, smart watches, shoes and clothes. Meanwhile, China is hitting US crude oil for the first time and US pork for the third time, raising total tariffs on imports of its favourite meat to 72 per cent. The new tariffs will add to pressure already felt by WH Group, the world’s largest pork producer, due to African Swine Fever, according to analysts. Over 50 per cent of WH Group’s revenue comes from its US business, Smithfields, which will feel the negative impact of new tariffs, according to Lorraine Tan, director of equity research, Asia, for global financial services firm Morningstar. “The restriction adds volatility to hog futures, so as a hog producer, it impacts Smithfields’ margins,” she said. Meanwhile, pork companies continue to be hit by the effects of the deadly African Swine Fever, which has led to about 1.2 million pigs being culled, according to official statistics, and sent prices soaring. The disease means that “pork produced by Chinese pig farms will gradually not be able to meet the demand from the Chinese population, so they have to import from the US. If China imposes a tariff on all the imports, that applies to WH Group,” said Louis Tse Ming-kwong, managing director of VC Asset Management. Following its half year results in August, WH Group said it will import more meat from Europe and South America into China. In the first six months, it brought in around 100,000 tonnes of fresh pork from the US to China, in line with the same period last year. WH Group’s stock reached an all time high on April 23 of HK$9.95, but since then has plummeted nearly 37 per cent to HK$6.31. Tse recommended to buy below HK$6 and accumulate cheap stock. Beaten down stocks can provide cheap buying opportunities, particularly if a trade deal is worked out eventually. But, if the trade war drags on, essentially all but stocks related to Chinese consumption are likely to suffer, analysts say. Furniture maker Man Wah Holdings will feel the heat, said Kenny Wen, wealth management strategist at Hong Kong brokerage Everbright Sun Hung Kai. According to Wen, in his worst case scenario of Hong Kong’s Hang Seng dropping 15 per cent to test 22,000 in the next six months, vulnerable stocks like tool maker Techtronic Industries could fall 20 per cent. Hong Kong’s stock market has always bounced back strongly after big protests in the past. Will it this time? Techtronic posted a 12 per cent year-on-year increase in first-half profits, to US$285 million, and a 9 per cent increase in revenue owed, it said in a filing, owed to a “rapidly expanding” global manufacturing footprint designed to mitigate tariff effects. Techtronic’s stock has risen over 30 per cent so far this year, which increases its downside risk as the trade war worsens and manufacturers become more vulnerable, said Wen. Many of its products are still made in Guangdong, southern China. “Anything related to manufacturing will be hit – tech components, clothing – anything that the US relies on that is made in China is in trouble. That is how I see it in a simple way,” said Haitong International Securities’ Leung. “I have been avoiding those pretty much since the beginning of the year.” When China’s father of EVs starts talking up hydrogen vehicles, analysts say investors should pay attention Technology stocks in the line of fire of the latest tariffs are telecoms company ZTE, semiconductor equipment manufacturer ASM Pacific Technology, and smartphone component makers Sunny Optical and AAC Technologies. A key supplier to Huawei and Apple, AAC Technologies recorded its highest percentage of sales as coming from the US in 2018. In the first half of this year, its revenue dropped 10 per cent year on year, and its net profit shed 57 per cent. Weaker growth was due to Huawei suffering a “dramatic slowdown” in smartphone shipments amid trade restrictions from the US, which fell from 50 per cent in the first three months of the year, to 8 per cent from April through June, according to a report by Bloomberg Intelligence. AAC, therefore, may struggle to reverse the declines, analysts said. “The group is not aware of any of its key raw materials and products being included in the latest target lists and its products are also not directly exported to the US,” AAC said as part of its first-half results on August 23. “So far, the group’s business operations have not experienced any significant immediate impact arising from the trade frictions.” Meanwhile, among clothing companies, Geo Securities’ Lun says he is avoiding Shenzhou International Group Holdings. The company is China’s largest exporter of knitwear, according to its website. “All trade related shares you have to sell. I just don’t see any positives coming out of it,” said Francis Lun, chief executive of Geo Securities. But, amid the turmoil, some sectors may still be promising. Chinese consumer goods – such as brewers, dairy companies, domestic sports brands, drug manufacturers and insurers – potentially offer a safe haven. They have minimal exposure to the US and are being propped up by the Chinese government’s push to boost domestic spending. These include brewers like Tsingtao Brewery, China’s second largest brewery, and its rival China Resources Beer Holdings, and China Mengniu Dairy, the mainland’s second largest dairy producer, as well as sports manufacturers like Anta and Li-Ning, analysts said. China Resources Beer explores possibility of minority stake in the Asian unit of world’s largest brewer “Currently consumers in mainland China are more resilient. That would be one sector we are upbeat about,” said Louis Wong Wai-kit, director for Phillip Capital Management. “It is least impacted by the US-China trade war, because it is supported by the 1.4 billion population.” Among China’s sportswear giants, Fujian’s Anta Sports and Beijing-based Li Ning, named after the well-known former Olympic gymnast, are ones to watch, according to analysts, as the sector is helped by government support. “Sectors I like don’t rely on anything in the US,” said Haitong’s Leung. “We like consumers – foodstuffs, clothes and shoes that manufacture and sell in China. Anything related to China spending, within the local economy, is something I like.” Additional reporting by Chad Bray