Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

Japan Consumer discretionary / Thematic (Sector/Industry)

Many automotive stocks declined on the morning of Nov. 9 on fear of a Donald Trump presidency. We think selling for now is due to massive uncertainty on what Trump will do on a variety of policies, and we will not be changing our auto fair value estimates on indiscriminate selling until we have more clarity on policy. Still, despite a Republican House and Senate, many Republican members did not support Trump and may oppose his anti-free trade agenda. We think abolishing NAFTA or the Trans-Pacific Partnership are far from a sure thing and depend on Trump’s negotiations with his own party. We think renegotiations of the agreements are more likely.If Trump succeeds in changing these agreements, then we’d assume prices on all vehicles would go up over time, even for Detroit Three-made vehicles as they do import electronics content. TPP is favorable to Japanese automakers since it allows them to source over half a vehicle from non-TPP nations, such as China, and still sell it in the U.S. tariff-free. Abolishing TPP would be negative for Japanese automakers selling in the U.S. but regardless of trade agreements, firms have to offer great product. <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor Corp (7203 JP)</a> has been making Tundra pick-ups in the U.S. for over a decade to avoid the 25% U.S. tariff on pick-up trucks (aka the chicken tax) but that has not meaningfully hurt the Detroit Three’s dominance in the full-size pick-up segment. TPP or no TPP, Japan is likely to remain effectively closed to American automakers and the Japanese OEMs have a big market share lead in many Southeast Asian markets--like Malaysia, which is part of the TPP--that a trade agreement is not likely to change.Analyst: David Whiston, CFA, CPA, CFE &amp; Richard Hilgert

Many automotive stocks declined on the morning of Nov. 9 on fear of a Donald Trump presidency. We think selling for now is due to massive uncertainty on what Trump will do on a variety of policies, and we will not be changing our auto fair value estimates on indiscriminate selling until we have more clarity on policy. Still, despite a Republican House and Senate, many Republican members did not support Trump and may oppose his anti-free trade agenda. We think abolishing NAFTA or the Trans-Pacific Partnership are far from a sure thing and depend on Trump’s negotiations with his own party. We think renegotiations of the agreements are more likely.If Trump succeeds in changing these agreements, then we’d assume prices on all vehicles would go up over time, even for Detroit Three-made vehicles as they do import electronics content. TPP is favorable to Japanese automakers since it allows them to source over half a vehicle from non-TPP nations, such as China, and still sell it in the U.S. tariff-free. Abolishing TPP would be negative for Japanese automakers selling in the U.S. but regardless of trade agreements, firms have to offer great product. Toyota Motor Corp (7203 JP) has been making Tundra pick-ups in the U.S. for over a decade to avoid the 25% U.S. tariff on pick-up trucks (aka the chicken tax) but that has not meaningfully hurt the Detroit Three’s dominance in the full-size pick-up segment. TPP or no TPP, Japan is likely to remain effectively closed to American automakers and the Japanese OEMs have a big market share lead in many Southeast Asian markets--like Malaysia, which is part of the TPP--that a trade agreement is not likely to change.Analyst: David Whiston, CFA, CPA, CFE &amp; Richard Hilgert

Pan Pacific International Holdings (7532 JP)

Trump Victory Brings Uncertainty to Auto Sector Around U.S. Trade Agreements