As US, China reach a trade truce, these are the stocks to buy or avoid

Business Times

16-05-2025

[SINGAPORE] Markets have experienced wild swings since US President Donald Trump slapped tariffs on the country's trading partners.
Globally, US and other major markets have sold off with investors piling back into stocks again as Trump makes decisions to slap fresh additional tariffs, and delay tariffs.
In the latest, markets have rallied since the US and China took a pause on the large tariffs placed on goods from each country on Monday (May 12).
The S&P 500 has recovered its 2025 losses, gaining 3 per cent on Monday and closing at its highest level since Mar 3. It extended gains on Tuesday, closing around 0.7 per cent higher at 5,886.55, putting the broad-based index up around 0.1 per cent for the year.
Following discussions between the two giants, the US will cut tariffs on Chinese goods to 30 per cent from 145 per cent, while China will lower tariffs to 10 per cent from 125 per cent on US goods.
Shares of Tesla jumped nearly 5 per cent on Tuesday, and Nvidia rose 5.6 per cent after the announcement that the company will send 18,000 of its top artificial intelligence (AI) chips to Saudi Arabia. The Invesco QQQ exchange-traded fund soared to US$515.59 on Tuesday, after hitting a low point of US$416.06 in early April.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Sign Up
Sign Up
The Straits Times Index rose around 1.8 per cent or 68.82 points in morning trade on Tuesday to 3,944.78, when trading resumed after the Vesak Day break on Monday. It last closed at 3,891.94 on Thursday.
So where should investors look to place their funds at this juncture amid the uncertainty? Here's what analysts said.
Tech stocks
Even though the tech sector has bounced back, with the Magnificent Seven stocks adding around US$837.5 billion in market value with Monday's tariff pause, analysts were still wary about several big-name tech stocks.
A crucial factor they still consider for their ratings is the company's 'economic moat' – where a wider moat indicates a greater ability to have a lasting competitive edge that safeguards its market share.
For example, while Tesla shares surged on Monday, Seth Goldstein, strategist at Morningstar, maintained his US$250 fair value estimate of the 'narrow-moat' stock, as its shares were overvalued to him, trading nearly 30 per cent over their fair value estimates.
'If the reduced tariff rates remain in place, Tesla should benefit from lower tariff-related inflation. However, we continue to forecast lower deliveries in 2025, as we think their current model lineup is close to market saturation,' he explained in his report on Monday.
For Apple, William Kerwin, equity analyst at Morningstar, kept his fair value estimate of US$200 on the 'wide-moated' stock, after its second-quarter earnings report on May 1 revealed that revenue increased 5 per cent year on year to US$95.4 billion, and iPhone revenue rose 2 per cent to US$46.8 billion.
Apple's core devices are currently exempt from US tariffs, and most US iPhone units are now imported from India.
However, he continued to estimate 25 per cent gross downside risk to earnings and the company's intrinsic valuation, if Apple were to lose its exemption and face the full brunt of tariffs in the future.
'Management noted no signs of customers accelerating purchases in advance of potentially higher costs from tariffs. We still surmise this is happening, mostly on the margin. We do like that Apple is building its own inventory to bring in lower-cost products as a precautionary measure,' wrote Kerwin on Monday.
As for China tech stocks, Asia equity market strategist Kai Wang and senior associate equity analyst Kathy Chan at Morningstar said Taiwan Semiconductor Manufacturing Company (TSMC) was the only name on their list for the Greater China region that has traded below fair value estimates of 0.7 times.
'For now, we prefer TSMC, given its near-monopoly status as a leading-edge chipmaker,' they said in their Monday report.
'While there is uncertainty on how semiconductor tariffs will play out, we believe TSMC's wide-moat status due to its technological advancements should help mitigate these risks.'
Some optimism for Chinese stocks
In addition to the tech space, investors with greater risk appetite can consider stocks in China's communications and consumer sectors, said Morningstar's Wang and Chan.
Based on past recovery patterns from the trade war in 2018, these industries are most likely to see the greatest appreciation, observed the analysts.
Within the communications services sector, Baidu, local gaming company NetEase and Tencent are trading at fair value estimate ratios of 0.7 or below, and have limited exposure to US revenue.
'For Tencent and Baidu, investors also gain exposure to the long-term buildout of AI infrastructure and growing demand, with the latter leveraged to China's macroeconomy through its advertising business, and stands to benefit from further tariff reductions,' they explained.
'NetEase on the other hand provides exposure to domestic gaming industry growth.'
Consumer household names such as Yum China and JD.com reflect a strong economic moat, too, with Wang and Chan stressing that this sector has the highest proportion of undervalued stocks.
'Tariff reductions should relieve consumer financial pressures, which could provide greater growth for JD.com, as it continues to benefit from further government stimulus,' they wrote.
Uncertainty for Malaysian gloves sector
However, not all sectors are having a field day with this most recent trade development – especially Malaysian glove makers.
While the temporary tariff rollback could lead to a less competitive rate for glove makers in China, any lingering uncertainty with the new changes could cause customers to 'wait and see', thereby delaying purchasing decisions and slow sales, said Maybank Securities analyst Wong Wei Sum.
'More critically, new capacity from China glove makers in South-east Asia, expected from 2026, poses supply risks that may pressure volume and average selling prices,' Wong wrote in his Tuesday report.
Oong Chun Sung, regional equity research analyst at RHB, also had a pessimistic view on the rubber products sector, downgrading his rating to 'underweight'.
To him, a clear threat is posed to Malaysian players with the lower tariffs, as it narrows the average selling price difference of their goods with that of Chinese peers to US$4 from US$21 previously.
'Based on our analysis, for every 10 percentage point US market share loss to Chinese competitors, the potential volume loss to local Malaysian players could be in the 1 to 7 per cent range,' Oong wrote.
Both analysts downgraded Top Glove to a 'sell' rating from a 'buy' call previously, with Oong lowering his target price to RM0.75 from RM1.06, while maintaining 'sell' ratings for glove marker Hartalega and rubber product manufacturer Kossan Rubber.
'That said, the overall impact on Top Glove should be minimal, as its US exposure is the lowest,' he said. 'On the other hand, both Hartalega and Kossan Rubber should see greater impact to volume sales, as they have relatively higher revenue exposure from the US.'
Out of the woods? Beware a 'dead cat bounce'
The easing of the trade war between US and China have offered good reasons for optimism among market watchers.
Morningstar's analysts acknowledged how the talks between the two superpowers have been productive, though risks of a 'dead cat bounce' remain – where the recovery of asset prices could simply be temporary if Trump's relationship with Chinese President Xi Jinping sours again.
Therefore, investors should not let their guard down completely and throw caution to the wind, warned managing director of investment strategy for OCBC Vasu Menon.
'While Trump's planned tariffs have been paused, the final outcomes remain unclear,' he told The Business Times. 'This results in uncertainty regarding his trade policies.'
Still, the bank remained positive on the wider outlook for a 12-month horizon. For investors, Menon recommended portfolio diversification and managing risk through a dollar-cost averaging strategy.
He was also bullish on gold and has a 12-month target of US$3,900 for the precious metal, echoing what Blackrock Investment Institute strategists sounded out in a Monday note on how the commodity was a 'better buffer against geopolitical risks than other traditional safe-haven assets since Apr 2'.
Certain local counters during this time – such as ST Engineering – have signalled strength too, with RHB's Shekhar Jaiswal maintaining his 'buy' rating and a target price of S$8.30. This was due to 'limited direct financial impact from US tariffs' and its 'diversified portfolio which confers a competitive edge'.
'We also have a quality bias on investment-grade bonds in the fixed income space, with a focus on short-term (one to three years) and medium-term (three to seven years) maturities, as they are less susceptible to rates volatility,' OCBC's Menon added.