The financial media has been running with the "Trump Tariffs" story in the past 24 hours based on the assumption that the administration will announce new punitive measures against China on Friday. We'll see if that actually happens, but if there are new tariffs, the usual suspects will be affected. I've said several times in my Real Money columns that I believe Boeing (BA) would be affected most among U.S. blue chips by a "trade war". BA stock has fallen this week; I believe those concerns.
Fallen, of course, is a relative term, given the amazing run BA shares have been on in the past year, but other potential trade war victims like Caterpillar (CAT) and Fluor (FLR) are also down in this week's trading.
I think, though, the market is getting it wrong. The real battlefield between the U.S and China is not over hard goods, but soft services, and the worthwhile fight is over intellectual property rights. Chinese companies have a terrible reputation among U.S corporate managers, and that is due to IP concerns, not, in my opinion, cultural ones.
So, the losers from a trade war are not the companies that sell airplanes or backhoes or soybeans to China, but Chinese companies that use U.S. methods -- and often purloined lines of code -- to dominate the Middle Kingdom while household names like Facebook (FB) and Alphabet (Google) (GOOGL) are blocked there.
The run in the shares of Alibaba (BABA) , Baidu (BIDU) and Tencent (TCEHY) -- all of which are listed in New York, but not in China, although there are persistent rumors of the creation of CDRs, Chinese depositary receipts for local investors -- has been stunning, and I should have been on these stocks three years ago. The next wave of Chinese media companies, led by iQIYI (IQ) -- often referred to as "the Netflix of China" -- offer even more attractive user bases from a demographic perspective than the "Big 3" Chinese Internet plays
All of these companies would be losers from a trade war focused on intellectual property, and, personally, I am eagerly awaiting that prospect. I would LOVE for names like iQIYI to come back to Earth so that I could buy them and hold them for the next 20 years. That's the great thing about equity markets. The misguided overreaction to short-term non-financial events by active stock market participants can give us the keys to the DeLorean and allow us to go back in time to an era when stocks were more fairly valued.
I believe this will be the case with Chinese tech stocks if tariff headlines continue to dominate the news, and , again, I cannot wait for a pullback to buy, buy, buy and play the emergence of hundreds of million of avid consumers into the middle class.