China's tariff response 'the big wildcard' for local equities: Morningstar
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The news: Morningstar analysts believe the "Liberation Day" tariffs announced by US President Donald Trump last week pose "limited" direct impact on Australian equities, but indirect effects could be "much more severe".
They also flagged that China's response to the tariffs is "the big wildcard" facing local companies.
The numbers: Morningstar analysts noted that many ASX-listed companies own US businesses, meaning the equity market is more exposed to tariffs than the broader economy.
Australia's 20 largest public companies generate approximately 10% of their revenue in North America, they said, despite the region accounting for only 6% of Australia's total exports.
The context: The analysts said the tariffs mean Australia's exports to the US are now less competitive relative to domestic alternatives, which has implications for US demand for Australian goods and services.
Meanwhile, the indirect impact of a slowing global economy may reduce demand for Australia's exports "across the board", not just in the US.
The analysts see cyclical, globally orientated sectors — including basic materials, consumer cyclical and industrials — as the "most vulnerable". Some ASX-listed healthcare companies also manufacture in tariff-affected jurisdictions, they noted.
Defensive, domestically focused sectors — such as utilities, consumer defensive and real estate — look most protected, they said.
Elsewhere, the analysts noted that China is Australia's largest trading partner by a wide margin, importing over $200 billion worth of goods in 2023, nearly 10 times the value of exports to the US. Higher tariffs imposed on China by the US increases the chances of additional China economic stimulus, possibly insulating Australia from some of the economic shock.
The source: Morningstar research
