China-U.S. feud means deeper investor analysis required

By The IJ Staff | June 04 2019 09:30AM

With the ongoing trade tensions between the United States and China, Canadian investors must do more than analyze a company’s fundamentals when it comes time to buying an investment, says a new report from National Bank.

Now, investors must also look at the country that a firm considers its home base and whether that country’s relations with its main trading partner will be strained because of the China-U.S. feud.

In the report, analyst Angelo Katsoras says Canada will have to adapt to a global environment between China and the United States.

Analysis required

Navigating the new trade environment means companies “must analyze whether their business models and supply chains are compatible with the geopolitical objectives of China, the United States and other major countries,” states the report. This increases the risk of losing market share to competitors with inferior products and services owing to geopolitical factors.”

In fact, Canadian companies that want to focus on the U.S. market risk seeing their ability to get to China reduced. On the other hand, companies that want to focus on the Chinese market may find it more difficult to access markets in the U.S.

Even if the U.S. and China come to some kind of trade agreement, there could be some risk for Canada, states the report.

“While Canadian companies would likely benefit from a China-U.S. deal that includes greater protection for intellectual property and a more level playing field, an agreement by China to substantially increase its purchase of various U.S. agricultural and energy products could reduce Chinese purchases of similar Canadian goods.”

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