The growing tensions between the US and China are refocused after the State Department ordered the closure of the Chinese consulate in Houston due to intellectual property and privacy concerns.
The tension outbreaks could last another decade, warns Mark Tepper, president of Strategic Wealth Partners. He adds that two popular actions could be vulnerable if the situation worsens: Apple and Nike.
“China accounts for about 20% of both companies’ revenues, and I think what people need to think about right now is potentially managing risk in these positions by cutting back,” Tepper told CNBC’s “Trading Nation” on Wednesday.
He said Apple appears to have a “perfect price” after a 32% run this year and trading at a future price-earnings ratio that doubles its five-year average.
“As much as Apple wants to shift the focus to services, they first need to put their phones in the hands of the consumer in China,” he added.
As for Nike, he says the sportswear company’s exposure is about demand and the supply chain.
“In addition to getting a large chunk of its revenue from China, China also produces 23% of its shoes, making it a problem regarding tariffs,” he said. “With these two companies, they are good companies, a lot of people own them, but I think we have to be smart, we have to manage risk, and it might make sense to cut back.”
Chinese stocks have taken off. Large-cap ETF FXI China rose nearly 8% this month, outperforming the S&P 500.
JC O’Hara, chief market technician at MKM Partners, is watching CQQQ China’s technology ETF for signs that the recovery may continue or is about to fall. He says that, like in the United States, technology stocks in China have been market leaders.
“The chart is still in a very clear and well-defined bullish trend. The ETF recovered 70% from the March lows. It is important, and I will even say that it is vital, for the bulls to see that this chart remains above those 2018 highs at $ 65. Failing to maintain that level will indicate to me that leadership is failing, which in turn I believe will result in further weakness for Chinese stocks overall, “O’Hara said during the same segment of “Commercial Nation”.
The CQQQ ETF closed Wednesday at $ 68.52.
Disclosure: Ascent Wealth Partners owns AAPL.
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