The $336 Billion-Battered Sector to Watch in Asia: Taking Stock

(Bloomberg) -- The car industry may be a prime space for Asian investors to watch in coming weeks as they assess not just trade talks, but also the national security threat of auto imports.

Since hitting record highs at the end of January 2018, Bloomberg gauges for both Asia Pacific car manufacturers and parts makers slumped at least 28 percent each to bottom out by the end of December. The two indexes have erased about a combined $336 billion in value from their January highs, according to data compiled by Bloomberg.

The global automotive industry has buckled under the pressure of dueling tariffs from the ongoing trade war and an attendant economic slowdown in China, the world’s largest auto market, that’s hampered domestic demand.

Headlines hit earlier that U.S. President Donald Trump has received a Department of Commerce report into whether imports of autos and car parts pose a threat to national security. The statement didn’t give further details or any recommendations, but investors may not have long to wait for his deliberation on potential tariffs for the industry, largely targeted at the European Union.

Trump also said last week’s trade talks with China were “very productive,” and there are indications the two sides may reach a deal or extend discussions. In the meantime, with the trade-war truce still set to expire March 1, automaker Tesla Inc. is scrambling to ship as many of its Model 3 sedans as it can before tariffs potentially get ratcheted back up -- just one example of how the friction has roiled the industry.

The $336 Billion-Battered Sector to Watch in Asia: Taking Stock

And things keep looking gloomy. China’s car sales dropped for a seventh month in January, according to a China Association of Automobile Manufacturers report Monday (the China Passenger Car Association, another industry group, is scheduled to release retail sales figures for passenger vehicles later in the day). Last year, the nation recorded its first annual slump in auto sales in more than two decades, as sales fell 6 percent to 22.7 million units, China Passenger Car Association figures showed.

While the two indexes tracking the industry’s shares have bounced back along with other Asia stocks to start the year, their gains are trailing peers. The Bloomberg Asia Pacific Auto Manufacturers Index is up more than 5 percent from its December low, compared with a 11 percent rally for the wider benchmark MSCI Asia Pacific Index in the same period. The auto-parts gauge has climbed 9.2 percent in that time.

“If we follow the time line for steel and aluminum, the Department of Commerce report was issued almost exactly a year ago today,” with Trump following up with tariffs of 25 percent on steel and 10 percent on aluminum about two weeks later, opting for making them marginally higher than those recommended, Elsa Lignos, global head of currency strategy with Royal Bank of Canada, wrote in a Feb. 15 note to clients.

It’s the perfect storm: China economic growth concerns, U.S.-China trade talks and separate tariff threats on national security worries. As we wait for it all to play out, bulls can focus on the “Everything Is Awesome” theme this Monday. The regional MSCI Asia Pacific Index rose as much as 1.3 percent, set for its highest level in more than four months, with stocks in China, Hong Kong and Japan leading the way as optimistic signs on the global economy and trade discussions prevailed.

Question of the Day: Will Auto Tariffs Sway ECB Into TLTROs?

Stock-Market Summary

  • MSCI Asia Pacific Index up 1.1%
  • Japan’s Topix index up 1.5%; Nikkei 225 up 1.9%
  • Hong Kong’s Hang Seng Index up 1.6%; Hang Seng China Enterprises up 2%; Shanghai Composite up 2.2%; CSI 300 up 2.5%
  • Taiwan’s Taiex index up 0.8%
  • South Korea’s Kospi index up 0.5%; Kospi 200 up 0.4%
  • Australia’s S&P/ASX 200 up 0.4%; New Zealand’s S&P/NZX 50 little changed
  • India’s S&P BSE Sensex Index down 0.6%; NSE Nifty 50 down 0.6%
  • Singapore’s Straits Times Index up 0.7%; Malaysia’s KLCI up 0.1%; Jakarta Composite up 1.2%; Thailand’s SET up 0.1%; Vietnam’s VN Index up 0.3%
  • S&P 500 e-mini futures little changed after index closed up 1.1% in last session. U.S. markets will be closed for a holiday Monday.

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