Investors appear to have gotten what they wanted from the meeting in Japan between U.S. President Donald Trump and China’s Xi Jinping over the weekend. Both leaders agreed to go back to the negotiating table to settle the ongoing trade dispute which has threatened to derail the global economy.
In the run-up to this weekend’s G20 meeting, investors had already built up hopes for a positive outcome, as was evident from the stock market’s recent bull-run. The rose 6.9% in June, making it the best monthly advance since January, on optimism that the world’s two largest economies will find a way to resolve their differences and that the U.S.’s Fed will .
A truce in the trade tiff, however, doesn’t guarantee that trade-related uncertainties will be over soon, though it raises hopes that both countries are keen to avoid the worst outcome. With this macro backdrop, we’re keeping an eye on three mega caps that are among the most exposed to China. Each stock could see some positive momentum this coming week:
Chipmaker Nvidia (NASDAQ:) may lead an optimism-fueled rally in the semiconductor sector which has been extremely volatile, as investors shunned chip stocks amid an uncertain outlook for both demand and trade.
NVDA Weekly TTM
China is both a major market and a key part of Nvidia’s supply chains. More than half of the company’s are generated from the Asian country. The benchmark tumbled nearly 17% during May, its biggest one-month drop since November 2008, but it is up almost 13% in June, its best month since October 2011.
“Semiconductor suppliers have relatively high ‘ship-to’ revenue exposure to China,” Quinn Bolton, senior semiconductor analyst at Needham, said in a note in May. “This high exposure to China puts the semiconductor sector at greater risk to the escalation in the U.S.-China trade war than many other segments of technology.”
Since reaching an all-time high of $292.76 in October, Nvidia shares have lost almost 44% of their value as demand fell and the inventory levels built up. On Friday, the stock closed at $164.23, up $0.61%.
Another top tech stock that’s been since the Sino-U.S. trade hostilities escalated is Apple (NASDAQ:). In a letter to the U.S. government this month, Apple emphasized the significant risks to its business if Trump imposes 25% tariffs on a new slate of products imported from China.
The iPhone manufacturing giant employs an estimated two million people in the Apple supply chain, in addition to a similar number of tech workers busy on the development of Apple apps. The company designs and sells most of its products in the U.S., but imports them from China after assembly.
The latest truce between the U.S. and China will again raise hopes that one of the largest U.S. tech stocks will be able to avoid disruption in its massive network of suppliers in China without forcing the company to move its production to other countries.
Apple shares closed at $197.92 on Friday, down about 1%. However, the stock is up more than 10% in the past one month.
Sportswear powerhouse Nike (NYSE:), though part of the more traditional manufacturing segment of the economy, has an equally strong stake in seeing a settlement of the trade dispute. China is an increasingly important market for Nike.
Its most recent , released Friday, showed that revenue from greater China rose 22%, the company’s 20th consecutive quarter of double-digit gains. As well, about 26% of Nike’s footwear and apparel were made in China last year.
NKE Weekly TTM
So far, Nike hasn’t seen any major impact from this trade dispute. Nike continues to source products from China, and sees an opportunity to expand production there, the company’s executives said during a conference call.
The company posted profit of $0.62 a share for the quarter, missing expectations of $0.66, due to higher expenses and taxes. The stock—which closed at $83.86 on Friday—is up about 9% since the May 31 low of around $77.