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President Xi is expected to sign a deal with President Trump that will cover billions of dollars worth of exports. These three dividend stocks will likely benefit.
The ongoing trade war between China and the US has hurt both sides. Demand for many Chinese exports has fallen, and consumers in the US are paying more for their everyday purchases. Business confidence around the world has been hurt.
But now, with China’s economy slowing and Trump preparing for the 2020 election, both sides are trying to improve relations. To that end, Trump and Xi (represented by Vice Premier Liu He) are expected to sign phase one of a comprehensive trade deal on January 15. Once the first stage of this trade deal has been signed, investors are more likely to see subsequent trade deals signed.
Considering many stocks fell due to the trade tensions, it stands to reason those same stocks will benefit if trade tensions abate.
Here are three dividend stocks, Jiangxi Copper Co Ltd (SEHK: 358), Sands China Ltd (SEHK: 1928), and Galaxy Entertainment Group (GEG)(SEHK: 27) that will likely benefit from the improving ties.
As one of China’s largest copper producers, Jiangxi Copper Co Ltd’s profits depend on copper prices.
If copper prices rise, Jiangxi Copper will have higher margins. If copper prices weaken, the company’s results won’t be as great. Due to improving copper supply and demand fundamentals since the beginning of 2016, Jiangxi Copper has seen its profits surge.
Jiangxi Copper data in RMB
Now trade tensions have led to the fall of copper prices since the middle of 2018. Jiangxi Copper’s profits haven’t grown as much in the first half of 2019 despite higher production.
According to Jiangxi Copper’s interim report, the company’s profits rose only 1.8% year-on-year in the first half of 2019. This happened despite the company’s refined copper cathode output rising 3.5% year-on-year.
If relations between China and the US improve, copper prices could head higher and Jiangxi Copper’s profits and dividends could follow.
At current prices, Jiangxi Copper currently has a forward dividend yield of around 2.09%.
Sands China Ltd
Given that its parent company is American and its permit to operate in Macau beyond 2022 hasn’t been renewed, Sands China’s future would be more secure if relations between the US and China improved.
If trade relations between the US and China really deteriorated, Sands China might have a hard time getting its casino concession renewed. Improving trade conditions make this worst-case scenario less likely.
Less black swan risk means a more secure dividend and a potentially higher valuation. Sands China currently has a forward dividend yield of around 4.68% at current prices.
Galaxy Entertainment Group (GEG)
Since visiting casinos is a highly discretionary activity, the well-being of Macau’s casinos largely depends on the confidence of Chinese consumers.
If trade tensions improve, China’s economy will likely benefit. This will boost Chinese consumer confidence, and more Chinese could visit Macau’s casinos. As one of the largest casino operators in Macau, Galaxy Entertainment Group will likely benefit from more cash flow.
With healthier cash flow comes a healthier dividend. According to AAstocks, Galaxy Entertainment Group has a yield of around 1.6% at current prices when counting special dividends.
If Xi signs a deal with Trump, trade relations between the US and China will improve and the shareholders of many copper companies and Macau casinos will benefit.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.