In the U.S.-China trade war, the economy is entering a deteriorating phase... When, and what should value stock investors aiming for a decline buy?
There are concerns that the US-China trade war may intensify,The Dow Jones average fell 617 points on May 13, and the Japanese markets have continued to decline.
The problem may drag on into June
President Trump is pressing China to increase imports and correct preferential treatment for domestic companies by implementing tariff hikes.His negotiation style, relying on intimidation, is his forte.
On the other hand, President Xi Jinping also has pride, so he cannot yield so easily. If he gives in easily here, it will not only harm the Chinese economy but also jeopardize his own position.His own position would also be at risk.
How long this situation will continue is unclear. In President Trump’s mind, as long as he cannot claim a victory, he has no intention of retreating step by step.There is a possibility that both sides will continue to endure until they meet in Japan in June.
The economy is already entering a worsening phase
Predicting the exact course of the trade war is difficult, but one thing is certain:the longer it takes to resolve, the worse the situation will become.
From a business perspective, this is understandable. If you don’t know how high tariffs will be, you can’t estimate sales or costs. In such a situation,you cannot decide to build new factories or expand production.
If investment and production fall, associated economic activity slows as well.The economy is like blood; if part of it stalls, the whole system collapses. In today’s globalized economy, that impact spreads worldwide.
This also applies to Japanese companies. For example, orders to high-tech equipment used in smartphones in China may slow down. According to the Cabinet Office,Japan’s economy is already in a worsening phase.
【Reference】The Economic Trends Index is signaling deterioration. (March data) — Cabinet Office
If the trade war drags on like this, the economic downturn will eventually spill over to the United States as well. Considering the flow of investment → production → consumption, the economic indicators in the United States, where consumption accounts for about 70% of GDP, are likely to lag behind.
If the economic downturn reaches the United States, stock prices will fall globally. Investors should keep this in mind up to this point.
Good stocks will come down in a bundle!
So, should investors buy or sell?
I think now is the“buying opportunity”.
Over the past three years, high-quality stocks have been trading at high levels. The better the company, the more difficult it was for value investors, with price-earnings ratios around 30–50 times.
However, during broad market declines, these tend to fall together. In such times, it’s like a sale with “everything 30% off.”
For example, Park24 (4666), which had stayed around 3,000 yen for about three years, has now fallen to around 2,000 yen. Its PER rarely dropped below 30, but now it is around 25. (This is not a recommendation.)
Identify good brands and view the overall market drop as an opportunity to buy prudently. This is the essence of value investing.
Prepare real ammunition to face the continuing decline in stock prices!
Of course, buying after the decline does not guarantee an immediate rise;more often prices fall further from there. That is the nature of a slump.
Therefore, buying too aggressively from the start will leave you with no funds when the real buying opportunity arrives.Keep some powder dry for the real buying moment.
That’s why you should buy cautiously. Leave room to absorb more declines if needed,and invest from funds you have available. If you have income, ensure you can allocate funds to investment.Ultimately, how much ammunition you have matters.
From now on, I expect the economy to slow, soI will limit the stocks I buy to those with strong economy resilience and long-term growth potential. You don’t need to buy everything. Hold only the names you can trust.
This is what you need to know about the market and stocks!
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