US-listed firms that derive a significant share of their revenue in China have significantly underperformed their peers in 2018. Fathom’s China Exposure Index (CEI) peaked at 117.3 on 22 March, the day that the US first announced that it would impose tariffs on imports from China; it has now dropped to 100.1, meaning that firms in the CEI have underperformed their US-listed peers by 15% since then. Sino-US trade tensions, a weakening renminbi and China’s slowing economy explain the underperformance. An easing of such trade tensions, and a firm commitment by China to open its markets to US firms, would be beneficial for firms in the CEI; we ultimately expect such an outcome to prevail, although a further escalation in trade tensions is a risk. Perversely, an escalation of the Sino-US trade war could delay the global recession that we expect to occur in 2020. For more on our CEI, how it is constructed and how it has evolved, see ‘Introducing the China Exposure Index 3.0’ (29 March 2018).
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