G-20 Recap: Trade Truce A Boost For The Market, Especially Chip Stocks

A thaw in U.S.-China trade relations is good news for American computer chip makers and was already boosting investor confidence abroad Monday. Stocks were already moving higher in Europe and Asia.

What Happened

President Donald Trump returns from the G-20 summit in Japan with an agreement to restart trade talks with China, a deal that includes removing a ban on U.S. companies doing business with Chinese telecommunications giant Huawei.

Trump agreed to postpone new additional tariffs on China, and resume discussion with China President Xi Jinping of those already imposed.

What It Means

The détente a boost tech stocks on Monday.

“We view the latest developments, and any subsequent final US-China trade agreement, as important ingredients to driving re-accelerating semiconductor industry sales in 2H CY2019,” Wells Fargo analyst Gary Mobley wrote in a note. “On the heels of the postponement of additional tariffs, an agreement to allow US companies to ship to Huawei as well as the agreement to restart trade talks, we are more constructive toward the semiconductor sector.”

Another potential positive was a side trip Trump took while in Asia as he went to the Korean border for a hastily-arranged meeting with North Korean leader Kim Jong Un that resulted in a handshake agreement to restart talks over North Korea’s nuclear program.

But the Washington-Beijing agreement was likely to be a bigger catalyst to financial markets.

Huawei's Importance

Mobley noted the import of lifting the ban on business with Huawei, which was the third largest buyer of semiconductors, with 4% of global semiconductor purchases in 2018.

Mobley said companies with particularly large exposure to China, such as Semtech Corporation SMTC, which has about 35% of sales tied to China, and Silicon Laboratories SLAB and Marvell Technology Group Ltd. MRVL could see a 4% to 6% revenue upside to forward estimates.

Even companies with less Chinese exposure, such as Cadence Design Systems Inc CDNS and Synopsys, Inc. SNPS are more likely to hit the high-end of their fiscal 2019 guidance, Mobley wrote.

IN addition to the stocks already mentioned, Micron Technology MU and Qualcomm Inc QCOM were among chip stocks making strong moves to the upside.

Oil Move

Oil markets may also react to the agreement, said Shawn Cruz, senior trading specialist at TD Ameritrade.

Speaking Friday, Cruz told Benzinga some of the recent rally in crude oil has been based on optimism about a resumption of trade talks.

Generally, markets were already cautiously optimistic about the prospects of a truce heading into the summit, he said, with economic pressure to resume normal trade.

“There’s been some pretty soft data coming out from both countries— China on the consumer front, (and) in the U.S. we had the surprise drop in consumer sentiment—that might force both sides to say ‘this is starting to hurt both of us. let’s get something going,'” Cruz said.

Related Links:

Trump, Xi Agree To Resume Trade Talks, Truce A Likely Relief To Markets For Now

Trump Talks China, Mexico And Big Tech In CNBC Interview

President Donald Trump and First Lady Melania Trump pose for a photo with Chinese President Xi Jinping and his wife, Mrs. Peng Liyuan, Thursday, April 6, 2017, at the entrance of Mar-a-Lago in Palm Beach, FL (Official White Photo by D. Myles Cullen).