4 Stocks That May Win The U.S.-China Trade War

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4 Stocks That May Win The U.S.-China Trade War

There are a few equities that may wind up being the main winners of the current U.S.-China trade war, a battle that so far appears to have mainly produced losers. The telecom oligopolies Ciena Corp. (CIEN), Nokia Corp. (NOK), Ericsson ADR (ERIC), and Adtran (ADTN) are among the potential winners as their sales are likely to soar if the U.S. government decides to forbid Huawei Technologies from conducting business with American businesses, according to Barron’s.

Global telecom spending is increasing as cellular networks upgrade to 5G, broadband networks upgrade to 10G, and fiber-optic networks upgrade. Western businesses that produce competing, often more costly goods than Huawei’s would benefit if a significant chunk of the market was taken away from Huawei. Meanwhile, NeoPhotonics (NPTN), Lumentum Holdings (LITE), and II-VI (IIVI), three businesses that do significant business with Huawei, are expected to suffer. The stock prices of Huawei’s three suppliers have already all fallen sharply.

As a privately owned business, Huawei is not listed on any stock exchanges.

4 Companies That Win IfHuawei Loses

·Nokia (CIEN)

·Ericsson (ERIC)

·Adtran (ADTN)

·Ciena (CIEN)


Charges against Huawei were released by the U.S. Justice Department on Monday, including claims that the Chinese firm violated Iranian sanctions and stole trade secrets from T-Mobile US (TMUS).The extradition of Huawei Chief Financial Officer Meng Wanzhou from Canada has also been officially sought by the United States.

Huawei’s Fiber-Optic Network Suppliers Suffer

The possibility that the Chinese equipment manufacturer will no longer be able to purchase American components is now more than zero, according to MKM Partners. This is terrible news for Huawei’s optical component vendors, who provide essential components for its fiber-optic network infrastructure. According to MKM managing director Michael Genovese, Huawei generates around 15% of the entire income for the sector.

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For businesses like San Jose, California-based NeoPhotonics, which receives more than 40% of its sales from Huawei, the DOJ’s news is especially devastating. More than 15% of the combined sales of U.S.-based suppliers Lumentum and II-VI come from the Shenzhen-based electronics giant.

According to Barron’s, Chinese manufacturers of telecom equipment are apparently placing advance orders for additional stock to prepare for a buying restriction.

In a report released Tuesday morning, Genovese said, “According to our inspections, Huawei, ZTE, and FiberHome are actively building optical-component inventories.” Investors are unlikely to give much credit until and until Huawei is officially not prohibited by the U.S. as part of a trade deal and/or DOJ settlement, even if near-term prospects for the sector are probably optimistic.

Huawei Competitors Could See Revenues Jump

Given that Huawei retains a large portion of the worldwide and American markets, its exit would allow rivals like Adtran, a company situated in Huntsville, Alabama, whose stock has increased by about 5% this week, to acquire market share. Other companies that might benefit from the prospective ban include Nokia, Ciena, and Ericsson, whose shares have fallen over 5% in the last five days but are now trading flat.

Genovese anticipates that investing on 5G technology would help Scandinavian telecom operators gain ground against Huawei in the next year.

The MKM Partners analyst said that Nokia and Ericsson will likely overtake Huawei in South Korea and Japan in 2019 and significantly increase their market share in Europe in 2020 as 5G spreads throughout the continent.

In the end, shutting off Huawei from US suppliers would hinder the company’s development in China, where it provides 5G network equipment. Genovese anticipates China will lag behind South Korea and Japan in 2019 when it comes to establishing a comprehensive 5G network. According to Genovese, the restriction might potentially cause European 5G ambitions to be delayed by up to two years.

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Looking Ahead

One of the things driving China toward a trade agreement with Washington may be the mere possibility of Huawei being barred from the American market. Even while Huawei isn’t officially banned, the pressure on American, European, and other corporations to stop using Huawei as a supplier or cut down on its use may nevertheless bring in a lot of new business for its rivals, driving up their earnings and stock prices.

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