MILAN, DEC 01 :
European stocks vulnerable to trade war; investors inquisitive about slowdown
With sluggish growth translating into the most disappointing earnings in years, European stocks are set for a tough ride if a full-blown Sino-U.S. trade war erupts following Presidents Donald Trump and Xi Jinping’s G20 dinner on Saturday.
The ongoing tariff dispute has already made the Chinese economy sneeze and given a cold to some of Europe Inc.’s most iconic powerhouses due to their heavy exposure to the world’s second biggest economy.
This drag is set to continue even if Trump and Xi’s meeting ends cordially. If relations between the economic superpowers deteriorate further, the impact on many of Europe’s top firms could be profound. Upmarket German carmakers like BMW or French luxury houses such as Hermes have already been tagged as collateral victims of the Trump administration’s trade policy after sharp falls in their share prices this year. With about 6% or roughly €80 billion of its constituents’ revenues originating from China, Germany’s DAX is typically used as a proxy to bet on a trade war and is lagging, with a 12.5% fall year-to-date, the less exposed pan-European STOXX 600 benchmark.
BMW will make 18% of its revenue in 2018 from the world’s second-largest economy, while Volkswagen’s share stands at 14%, according to Morgan Stanley. Even if Germany, whose bilateral trade with China hit a record €188 billion last year, is a key concern, worries among investors are widespread.
A study conducted for Reuters by business insights platform AlphaSense shows a threefold increase in the number of times a China slowdown was mentioned during European earnings conference calls between July and September this year.
While just 16 companies in the MSCI Europe index mentioned China in the context of a slowdown between April and June, that number climbed to 49 companies, in earnings calls during the following quarter. The mention of China, in any form or way, jumped from 361 to 540 during the same period.
