[Click eStock] "Chinese Stocks Are Cheap but Structural Discount Will Continue"

Meritz Securities forecasted on the 14th that with the U.S. presidential election scheduled for November this year and domestic and international uncertainties such as U.S.-China tensions, the structural discount period of the Chinese stock market is expected to be extended.

Earlier, in a foreign media interview last January, Trump responded to a question about whether additional tariffs would be imposed on China if he were re-elected by saying, "We have to do that." Regarding a recent report by The Washington Post (WP) that a uniform 60% tariff rate on China is being considered upon the start of a second term, he added, "It could probably be even higher."

Choi Seolhwa, a researcher in the Global Investment Strategy division, pointed out, "Trump has openly revealed in interviews with major U.S. media that if re-elected, he plans to impose a 'universal base tariff' that adds up to 10 percentage points on top of current tariffs on all foreign products and raise the tariff rate on Chinese products to at least 60%."

She added, "A tariff rate above 60% is more than three times the current average tariff rate of 19.3% imposed on Chinese products," and said, "Even with the current tariff rates, U.S. imports from China are rapidly declining, so if tariffs more than triple are imposed, the impact on Chinese exports will inevitably be very severe."

Bloomberg Economics also projected that assuming a 60% tariff on Chinese products starting in 2025, by 2030, the share of U.S. imports from China would plummet from the current 11.2% to 1%.

Researcher Choi explained, "This means that the U.S. import value from China, which was $427.2 billion at the end of 2023, will disappear by 2030," interpreting that "what China loses is not just simple exports to the U.S. but the collapse of the overall value chain and a decrease in citizens' income."

Regardless of the U.S. presidential election outcome, she also analyzed that the intensification of U.S.-China tensions will extend the structural undervaluation period of the Chinese stock market.

Choi said, "What is certain is that from China's perspective, whoever wins the U.S. election, the intention to strongly suppress China's rise remains the same, and China will be the biggest victim globally," adding, "Just as the U.S. previously restrained the rise of Russia and Japan, the pressure on China will continue to increase."

She further explained, "The Trump 2.0 era will have a greater impact on the Chinese economy than Biden because China has not yet succeeded in transitioning from the old economic model reliant on real estate, and if the trade war escalates further, the risk of falling into long-term low growth like Japan will increase."

Researcher Choi concluded, "What is clear is that due to these domestic and international uncertainties, the structural discount period of the Chinese stock market could be prolonged," pointing out, "Although the Chinese stock market is cheap, it is still difficult to enter it readily."

This content was produced with the assistance of AI translation services.