There was big news on the trade war front Friday morning.
The Office of the U.S. Trade Representative said that the U.S. and China have made progress in trade discussions and are close to finalizing parts of the phase one trade deal.
U.S. Trade Representative Robert Lighthizer, Treasury Secretary Steven Mnuchin, and Chinese Vice Premier Liu He “made headway on specific issues” on a call, “and the two sides are close to finalizing some sections of the agreement. Discussions will go on continuously at the deputy level, and the principals will have another call in the near future.”
As the world’s two largest economies near a phase one deal, one expert says now’s the time to buy four stocks that have been some of the biggest casualties in the ongoing trade war.
Invesco chief global market strategist Kristina Hooper says China has the most to gain from trade negotiations and could emerge as the winner in the war.
“This could be a scenario where China is actually able to stimulate its economy enough to ride out this war,” Hooper said. “We’re looking at the potential for more fiscal stimulus, more monetary policy stimulus and so that could put China tech higher than where it is today.”
Hooper oversees $1.2 trillion in assets, and is bullish on China’s version of the FANG stocks, BATS: Baidu (NASDAQ: BIDU), Alibaba (NYSE: BABA), Tencent Holdings (OTC: TCEHY), and Sina Corp (NASDAQ: SINA).
“Certainly, China tech in general looks good, but I think those large tech names are best positioned,” Hooper said. “Valuations are so low. We look at it from a price-to-sales ratio standpoint. Just screaming buys in China.”
The BATS stocks have been beaten down this year. Baidu shares are down nearly -35% year-to-date, and Sina shares are down more than -25%. Alibaba, the best performer of the group, is up almost 26% year-to-date, but is down -17% from its all time high reached mid-2018. Tencent is also up for the year, returning 2.33% so far this year, but it’s down -34% from its all-time high reached last year.
Analysts are bullish on all four, with a consensus Buy rating on each of the BATS stocks. And Wall Street says each could see big upside, with analysts indicating 44.27% upside ahead for Baidu shares over the next twelve months, 27.78% upside for Alibaba shares, 28.74% upside for Tencent, and 55.17% upside ahead for Sina.
But the Chinese BATS aren’t the only group Hooper has her eye on now. She also likes Big Tech names in the U.S. and says the current economic cycle could bode well for the group.
“We’re in a slowing growth environment where oftentimes investors favor secular growth, and that wold take us to a lot of the tech names,” Hooper said.
Hooper cautioned, however, that tech isn’t without some near-term risks.
“U.S. tech is a long-term play,” she said. “It may not perform well in the next couple of weeks. But I suspect in this coming quarter we will see solid performance from U.S. tech largely because we expect an accommodative Fed environment.”
For the rest of this year, Hooper says the market will see some volatility due to trade policy uncertainty.
“I suspect we’re going to be stuck in a trading range. But this is a far better environment than we saw last year at this time,” she said. “The Fed has been neutralized. It’s actually a positive for stocks, and really the big issue is going to be news flow around the U.S.-China trade war.”