News that China ordered the closure of the US consulate in Chengdu is adding to the gloom on markets, but it sent two ASX stocks jumping higher today.
The S&P/ASX 200 Index (Index:^AXJO) fell 1.3% ahead of the close with nearly every sector losing ground while the S&P 500 Index (INDEXSP: .INX) futures are pointing to a more than 1% drop for the US market.
China’s move is in retaliation for the US decision to shut the Chinese consulate in Houston, reported Bloomberg.
Worsening US-Sino ties to hit earnings
The US Chengdu consulate was opened in 1985 and covers Sichuan, Yunnan, Guizhou and Chongqing in the country’s southwest. It’s also a key listening post for developments in Tibet, where China is criticised by Western democracies of suppressing minority groups, added Bloomberg.
Sino-US relations have been steadily deteriorating with US President Donald Trump accusing China for spreading COVID-19 and taking a harder line against the Asian nation.
The breakdown is threatening global trade at a time when the world’s economy is careening into a deep recession due to the pandemic.
This will drag on the earnings of many ASX 200 stocks as they are exposed to US and international markets.
Strategic value shining through
But not all are worried. In fact, there are some ASX stocks that will benefit from the rising tension. One ASX stock that’s well placed to be rewarded is the Lynas Corporation Ltd (ASX: LYC) share price.
Shares in the rare earth miner jumped 1.9% to $2.17 on Friday when the market was tanking. Lynas is the only non-Chinese producer of rare earth commodities which are critical to the manufacture of a wide range of electronics and weaponry.
The US and its allies are desperate to cut its reliance on China for these critical raw materials, and that puts Lynas in a very good position, in my view.
Lynas is best hope for US supply
The Lynas share price had been under pressure recently on doubts that the US government will fund its proposed processing plant in Texas after intense lobbying by local miners.
But as I mentioned, Lynas is the only miner with any scale to replace Chinese supplies. The US government doesn’t really have a viable plan “B” – at least not one that can be put into action quickly.
All guns firing
Another winner from geo-political tensions between the world’s two largest economies is the Austal Limited (ASX: ASB) share price.
Shares in the shipbuilder also bucked the downtrend today by jumping 1.5% to $3.34.
Austal is building the Littoral combat ship for the US Navy but lost out on the tender to construct the multi-mission guided-missile frigates called FFG(X).
However, there’s speculation that Austal could get a second bite at FFG(X) as the US Navy can commission more of these warships in a shorter timeframe if it appointed a second builder.
The worsening relationship with increasingly militarised China could just provide that extra urgency for the US to tap Austal on the shoulder.
I own both ASX shares and I think they will outperform this financial year.
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Brendon Lau owns shares of Austal Limited and Lynas Limited. Connect with me on Twitter @brenlau.
The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Austal Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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