In this article, we discuss the 10 American stocks that can be affected by China’s real estate market crash.
The real estate sector in China has been tethering on the brink of collapse over the past few months after real estate giant Evergrande, in August 2021, warned of liquidity and default risks if it failed to resume construction, dispose of assets, and renew loans. The liquidity crisis of Evergrande threatens to snowball into a much bigger problem for the Chinese economy since the company has investments in health, electric vehicles, cultural tourism, and technology businesses, some even outside China.
The real estate sector in China overall is facing the music of years of governmental neglect as well. S&P Global Ratings has already warned that nearly 20% of Chinese developers it rates are at risk of insolvency. Research firm China Index Academy claims that new housing sales shrank 27% on the year in volume in the first half of 2022 in 100 major cities in China. The crisis is spreading to banks as well. This is significant since 26% of total outstanding loans at Chinese banks are linked to the real estate sector.
A slowdown in the Chinese economy, the second-largest in the world, will have ripple effects across the world. In the US, the collapse of the Lehman Brothers led to a global financial meltdown. American stocks with strong exposure to the Chinese market, like Apple Inc. (NASDAQ:AAPL), Tesla, Inc. (NASDAQ:TSLA), and The Walt Disney Company (NYSE:DIS), are already feeling the heat of this developing situation, and the US trade war with China and COVID shutdowns are adding to the pressures.
Our Methodology
The companies that are based in the United States but have deep links with the Chinese economy were selected for the list. The business fundamentals of these firms and the latest updates related to them are also discussed to provide some additional context. Data from around 900 elite hedge funds tracked by Insider Monkey in the first quarter of 2022 was used to identify the number of hedge funds that hold stakes in each firm.
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China’s Real Estate Market Crash Can Affect These American Stocks
10. Wynn Resorts, Limited (NASDAQ:WYNN)
Number of Hedge Fund Holders: 32
Wynn Resorts, Limited (NASDAQ:WYNN) is a Las Vegas-based corporation that owns and operates luxury hotels and casinos. The firm has strong exposure to the Chinese market and any slowdown in the Chinese economy will have disastrous consequences for the stock. This is illustrated by the recent earnings of the firm in which it missed market estimates on revenue by $72 million due to Macau uncertainty. Wynn Resorts, Limited has extensive operations in Macau and generates over 70% of its revenue from the area.
On August 10, Deutsche Bank analyst Carlo Santarelli maintained a Buy rating on Wynn Resorts, Limited stock and lowered the price target to $85 from $92, noting that the firm was reporting better-than-forecast metrics from operations in Vegas.
At the end of the first quarter of 2022, 32 hedge funds in the database of Insider Monkey held stakes worth $269 million in Wynn Resorts, Limited, up from 29 the preceding quarter worth $260 million.
Just like Apple Inc., Tesla, Inc., and The Walt Disney Company, Wynn Resorts, Limited is one of the stocks that can be affected by the real estate market crash in China.
In its Q3 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and Wynn Resorts, Limited was one of them. Here is what the fund said:
“In the most recent quarter, we exited the Fund’s holdings in Wynn Resorts, Limited due to: (i) ongoing COVID-19-related travel restrictions in China, Macau, and Singapore; and (ii) the Macau government’s announcement to tighten its casino regulatory oversight.”
9. Qorvo, Inc. (NASDAQ:QRVO)
Number of Hedge Fund Holders: 33
Qorvo, Inc. (NASDAQ:QRVO) makes and sells semiconductor products. The semiconductor firm has extensive links with Chinese companies working in the tech sector. A real estate crash in China is more than likely to affect manufacturing capabilities at these tech firms, which will hit Qorvo hard as it generates over half of its total revenue from shipments to the Chinese. The firm supplies chips to smartphones makers like Oppo and Vivo in China that have recently cut their sales estimates due to lower demand and currency devaluation.
On August 4, Craig-Hallum analyst Anthony Stoss maintained a Buy rating on Qorvo, Inc. stock and lowered the price target to $140 from $180, noting that smartphone weakness was a potential headwind for the firm.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Select Equity Group is a leading shareholder in Qorvo, Inc. with 664,704 shares worth more than $82 million.
In its Q1 2022 investor letter, Vulcan Value Partners, an asset management firm, highlighted a few stocks and Qorvo, Inc. was one of them. Here is what the fund said:
“Qorvo, Inc. is one of the two major providers of radio frequency RF systems which are critical components of mobile devices including smart phones and the Internet of Things (IoT). Two transitory concerns have recently affected the company’s stock price. First, supply chain issues continue to be a constraint. Second, Apple recently announced its decision to decrease production of its iPhone SE model. Neither of these issues threatens their long-term competitive position. Qorvo’s value is stable and despite the recent pressure on the stock price, we feel its long-term prospects are promising.”
8. The Boeing Company (NYSE:BA)
Number of Hedge Fund Holders: 52
The Boeing Company (NYSE:BA) markets military aircraft, satellites, and missile defense systems. In the past five decades, the company has developed a lasting relationship with aviation authorities in China, regularly selling the country airplanes and aviation equipment. The trade war between the US and China in the past few years has hit this business of the firm, and any slowdown in the Chinese economy will further the pain. The Chinese market accounts for nearly a fourth of all airplane sales in the globe.
On August 1, Morgan Stanley analyst Kristine Liwag maintained an Overweight rating on The Boeing Company stock with a price target of $215, noting that clearance for deliveries of the 787 Dreamliner aircraft was a positive catalyst for the firm.
At the end of the first quarter of 2022, 52 hedge funds in the database of Insider Monkey held stakes worth $1.3 billion in The Boeing Company, compared to 50 in the preceding quarter worth $1.1 billion.
7. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 54
Caterpillar Inc. (NYSE:CAT) markets construction and mining equipment. The company has been doing business in China since 1975. It generates around 25% of profits from the Asia-Pacific region, and although that includes sales in other countries, a major portion of this revenue comes from China. The firm has around 27 plants operating in the country and since these are all directly related to construction equipment, a real estate crash in the country would directly affect the revenue of the firm.
On August 3, UBS analyst Steven Fisher maintained a Buy rating on Caterpillar Inc. stock and lowered the price target to $225 from $250, backing the firm to achieve margin expansion targets in the coming months.
Among the hedge funds being tracked by Insider Monkey, Washington-based firm Fisher Asset Management is a leading shareholder in Caterpillar Inc., with 7.2 million shares worth more than $1.6 billion.
In its Q1 2022 investor letter, Diamond Hill Capital, an asset management firm, highlighted a few stocks and Caterpillar Inc. was one of them. Here is what the fund said:
“We also initiated a position in Caterpillar, one of the world’s leading manufacturers of construction and mining equipment. It’s a company we know well, as we have owned it in our large cap portfolio for quite some time. Recent share price weakness provided an opportunity for us to add it to our large cap concentrated portfolio at an attractive discount to our estimate of intrinsic value. We believe Caterpillar stands to benefit from increased capital investment supported by a healthier/recovering end market environment, particularly in construction and mining.”
6. Starbucks Corporation (NASDAQ:SBUX)
Number of Hedge Fund Holders: 58
Starbucks Corporation (NASDAQ:SBUX) is a specialty coffee firm. China is the second-largest market for the company, following the US. Although the revenue exposure of the firm to the market is limited to less than 25%, any crash in the Chinese economy would directly weigh on the shares of the firm since it operates 16% of all its stores in China. In the third fiscal quarter, the firm generated nearly $545 million in revenue in a reopened Chinese economy. The firm controls nearly 35% of the coffee market in the Asian country.
On August 3, JPMorgan analyst John Ivankoe maintained an Overweight rating on Starbucks Corporation stock with a price target of $92, noting that an upcoming analyst day was an important event for the firm.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Fundsmith LLP is a leading shareholder in Starbucks Corporation, with 8.2 million shares worth more than $749 million.
In addition to Apple Inc., Tesla, Inc., and The Walt Disney Company, Starbucks Corporation is one of the stocks with strong exposure to the Chinese market.
In its Q1 2022 investor letter, Polen Capital, an asset management firm, highlighted a few stocks and Starbucks Corporation was one of them. Here is what the fund said:
“We trimmed our positions in most of these companies in 1Q 2022 and sold our stake in Starbucks after a 12+ year holding period. In our view, Starbucks Corporation continues to be in a unique position to serve its customers who value the quality of its products and the convenient way they can be purchased. At the same time, Starbucks’ business is maturing in western markets, and its employee and store-related costs are growing, which should lead to slower earnings growth than we would prefer and further P/E multiple compression. We believe we have better opportunities as we continue to assess the impact of these issues for Starbucks Corporation.”
5. NIKE, Inc. (NYSE:NKE)
Number of Hedge Fund Holders: 67
NIKE, Inc. (NYSE:NKE) makes and sells athletic products. The revenues of the company took a major hit in the past few months as a backlash against Western brands in China and shortages of merchandise in the marketplace resulted in macro challenges. The drop illustrated what a crash in the Chinese economy would mean for Nike, which has strong exposure to the Chinese market both in terms of sales and manufacturing. Peers like Adidas and Puma also have exposure to China, but not at the level of Nike.
On July 25, Piper Sandler analyst Abbie Zvejnieks assumed coverage of NIKE, Inc. stock with a Neutral rating and a price target of $115, noting that the gross margins of the firm have structurally improved.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Fundsmith LLP is a leading shareholder in NIKE, Inc., with 6.7 million shares worth more than $905 million.
In its Q4 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and NIKE, Inc. was one of them. Here is what the fund said:
“NIKE, Inc. is another play on e-commerce as well as the anticipated growth in consumer spending as we learn to live with COVID-19. After selling out of the stock in 2016 due to competitive concerns, we were motivated to repurchase shares because of optimism around a new management team’s focus on accelerating Nike’s shift toward e-commerce and direct-to-consumer (DTC) distribution. Near-term supply chain issues in Vietnam and retail weakness in China that we see as ephemeral provided a good buying opportunity. We do not believe the market is giving proper credit to Nike’s potential to deliver attractive, high-single-digit revenue growth while delivering operating margin expansion as more merchandise is sold direct. NIKE, Inc. is also still under-indexed to the women’s category, which we see as a significant ongoing catalyst.”
4. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 73
QUALCOMM Incorporated (NASDAQ:QCOM) develops and sells foundational technologies for the wireless industry. The company generates more than 60% of revenue from shipments to China. These shipments are primarily intended for smartphone manufacturers. In light of declining smartphone sales, the revenues of the firm have taken a hit, and it lowered guidance for the fourth quarter recently. A slowdown in the Chinese economy because of a real estate crash would be a major downturn for the shares.
On July 28, Canaccord analyst T. Michael Walkley maintained a Buy rating on QUALCOMM Incorporated stock and lowered the price target to $225 from $250, noting that the firm could gain strongly from leadership in the 5G space.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in QUALCOMM Incorporated, with 3.5 million shares worth more than $538 million.
3. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 78
Micron Technology (NASDAQ:MU) makes and sells memory and storage products. The firm is yet another chipmaker that has deep links with the Chinese economy. The firm generates nearly 55% of revenue from sales to Chinese companies. In comparison, revenue from American firms forms only a fraction of this amount. In contrast to Qualcomm, the bulk of Micron contacts in China relate to computer data storage solutions such as USB flash drives and NAND flash memory, in addition to smartphone products.
On August 10, Deutsche Bank analyst Sidney Ho maintained a Buy rating on Micron Technology stock and lowered the price target to $68 from $70, noting that the shares of the firm were close to a trough.
At the end of the first quarter of 2022, 78 hedge funds in the database of Insider Monkey held stakes worth $3.4 billion in Micron Technology, compared to 83 in the preceding quarter worth $5.5 billion.
2. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 80
Tesla, Inc. markets electric vehicles and clean energy solutions. The firm has manufacturing facilities in China and the country has been one of the main drivers of margins and sales for the company in the past few years. A real estate crash in China would effectively slow down the Chinese economy overall, resulting in problems related to EV sales in China for Tesla. Already, the firm has reported a close to 18% quarterly drop in China revenue due to slowing EV demand.
On August 8, Canaccord analyst George Gianarikas maintained a Buy rating on Tesla, Inc. stock and increased the price target to $881 from $815, backing the firm to battle price headwinds with EV momentum and competitive lead from manufacturing.
At the end of the first quarter of 2022, 80 hedge funds in the database of Insider Monkey held stakes worth $11 billion in Tesla, Inc., compared to 91 in the previous quarter worth $12 billion.
Here is what Grantham Mayo Van Otterloo & Co. LLC has to say about Tesla, Inc. in its Q1 2022 investor letter:
“To put the demand growth for clean energy materials into perspective, let’s look at Tesla, Inc.. At its Battery Day last year, Tesla, Inc. projected three terawatt hours of lithium-ion battery capacity needed in 2030 for the EVs and storage they expect to produce. To reach this target, Tesla alone would gobble up approximately 75% of the world’s current nickel production and four times the world’s current lithium production. These numbers are astounding enough, but when one considers that EVs currently represent just 15% of global nickel demand and about 45% of lithium demand and that Tesla will likely be producing only a small proportion of the world’s EVs in 2030, the implications are staggering. Clean energy materials companies will make a lot more money in the decades to come than they ever have both because they will be selling a lot more metric tons of material and because there are certain to be shortages where supply can’t keep up with the rapidly growing demand.”
1. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 131
Apple Inc. is a diversified technology company. Since iPhones, one of the premier products of Apple, are manufactured in China, there is a larger perception that the company has outsized exposure to the Chinese market. However, the China revenue of the firm accounts for less than a quarter of the total revenue for Apple, in contrast to other firms like Qualcomm and Starbucks. This insulates Apple from a market crash in China somewhat but does not absolve it of risk completely.
On July 29, Morgan Stanley analyst Erik Woodring maintained an Overweight rating on Apple Inc. stock with a price target of $180, noting that the second quarter results of the firm were better than feared.
At the end of the first quarter of 2022, 131 hedge funds in the database of Insider Monkey held stakes worth $182 billion in Apple Inc., compared to 134 in the preceding quarter worth $186 billion.
In its Q2 2022 investor letter, Wedgewood Partners, an asset management firm, highlighted a few stocks and Apple Inc. was one of them. Here is what the fund said:
“Apple Inc. grew revenues +9%, driven by +17% growth in the Services segment. While iPhone revenues grew a modest +5%, it was on an exceptional year ago comparison of +66%. iPhone continues to capture most industry smartphone profits by focusing on high-end price tiers. Apple Inc. is taking nearly two-thirds of the revenue share in the premium ($400 and above) smartphone segment. Further, most of the growth was driven by expansion in the “ultra-premium” price tier of $1000 or more per unit.[1] As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially integrated circuits) and software continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.”
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This article is originally published at Insider Monkey.
