China Securities Co., Ltd.: Comprehensive U.S. tariff increase exceeds expectations, focusing on tariff immunity and performance direction in the short term.

China Securities Co., Ltd. released a research report stating that the scope and intensity of the new round of U.S. tariffs exceeded market expectations, with emerging markets being hit harder, potentially becoming the starting point of a new global major change. The high tariffs may drag the U.S. into stagflation or even recession, impacting China's external demand and increasing the necessity of policy measures to offset the impact. At present, China's reserve tools and policy space are relatively sufficient. In the short to medium term, the focus should be on tariff immunity and high-quality direction: 1) Due to the uncertainty of the new global order, focus on the value of dividend asset allocation; 2) Short-term attention should be paid to preventing overseas revenue risks, as global competitiveness may be transformed into a relative advantage, with a medium to long-term focus possibly shifting to "lower-tier markets"; 3) Benefit from domestic demand cycles and supply optimization, and seek high-quality directions. Key industries to focus on are: banking, utilities, food and beverage, social services, non-ferrous metals, computer, and media. Global capital market risk aversion is on the rise, with Chinese assets showing some resilience. The scope and intensity of the new round of U.S. tariffs exceeded market expectations, impacting emerging markets more severely. After the policy announcement, the U.S. dollar index weakened, the 10-year U.S. bond yield dropped from 4.2% to around 4.0%, and major global stock indexes declined, with the Ho Chi Minh index in Vietnam falling by 6.7% on the same day, and the U.S. stocks dropping by around 10% over two trading days. In comparison, the performance of the A-share market showed some resilience. High tariffs may drag the U.S. into stagflation or even recession. High tariffs are likely to push up the current inflation levels in the U.S. and could potentially drag the U.S. economy into stagflation or recession, disrupting Federal Reserve policy. On the other hand, if there is a significant fluctuation in U.S. stocks and other assets, the possibility of Trump adjusting the pace of tariff implementation remains to be observed. The necessity of policy measures to offset the impact of external demand shocks is increasing. March manufacturing PMI data shows that China's macroeconomic situation may still be in the bottoming-out phase, and the effective transmission of policies will take time. Against this backdrop, China's external demand is being impacted, and the production capacity utilization rates in some industries may come under further pressure, increasing the need for policy measures to offset the impact. The fiscal policy for 2025 is more proactive, exerting more force and power to address possible uncertainties, and the central government has reserved sufficient reserve tools and policy space. The Ministry of Commerce recently held a special press conference on promoting consumption, highlighting key tasks. In addition, there is a basket of policy reserves that have been announced but not yet formally implemented. Three possible stages following retaliatory tariffs. 1) Liquidity crisis period: not confirmed yet, but caution should be exercised for potential subsequent occurrences. A U.S. dollar liquidity crisis could lead to a global drop in risk assets, and Federal Reserve intervention in providing liquidity often signals the end of the crisis, providing opportunities to bottom-fish in risk assets including A-shares; 2) Tariff policy game-playing period: expected to last for at least 2-3 months or extend into the second half of the year, with possible periodic fluctuations in the market. Depending on risk appetite, one can hedge temporarily or participate with a medium position for high buying and low selling; 3) Period of economic restructuring: may last for over 5 years, with the U.S. economy likely to enter a recession, Chinese assets still have the opportunity to outperform, paying attention to the confirmation of domestic demand stimulus policies, which may become the starting point of a new bull market trend. Focus on tariff immunity and high-quality direction in the short to medium term. 1) Facing the uncertainty of the new global order, value dividend asset allocation; 2) Short-term attention to preventing overseas revenue risks, as global competitiveness may turn into a relative advantage, with a medium to long-term focus possibly shifting to "lower-tier markets"; 3) Benefit from domestic demand cycles and supply optimization, and seek high-quality directions.