Canada-China Tensions Spell Big Trouble for Canada Goose Holdings Inc. (TSX:GOOS) Stock

Canada Goose Holdings Inc. (TSX:GOOS)(NYSE:GOOS) stock has plunged in the midst of growing China-Canada tensions.

| More on:
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Canada Goose (TSX:GOOS)(NYSE:GOOS) stock fell 6.35% on December 13. Shares have plunged 12.5% over the past week.

Canada Goose has been caught in the crossfire of an unfolding diplomatic crisis between China and Canada. This began after Canadian authorities arrested Meng Wanzhou, the chief financial officer of Chinese telecom giant Huawei Technologies. Meng is also the daughter of Huawei founder and current head, Ren Zhengfei.

The move further complicated the prospects for the 90-day trade “truce” that was recently reached between the United States and China. Meng is sought by the United States for two charges of fraud relating to Huawei’s alleged breaching of U.S. sanctions against Iran. The move has darkened the China-Canada relationship. Anti-China hawks have also called for Canada to bar Huawei from playing a role in the development of Canada’s 5G network. The United States has threatened to scale back on intelligence sharing with Canada if it allows Huawei to play a significant role.

Chinese state-run newspaper Global Times publicized talks of a boycott of Canada Goose jackets. If such a boycott were to catch on, this could prove a heavy blow to Canada Goose’s ambitions in China. Earlier this month, I’d discussed why Canada Goose’s push into China was one of the reasons to be bullish on the stock going forward.

Liu Ying, a research fellow at Renmin University of China’s Chongyang Institute for Financial Studies, laid out this position in the report. “Canada, as a sovereign state, should not have followed the wrong step of the U.S. by illegally arresting Meng Wanzhou, the aim of which is to wage a war in the high technology sector by containing China,” Liu said. “Canada has gone too far in the Huawei case and chosen to be bound with the U.S. On the other hand, it wants the Chinese market, which is expected to become the largest consumption market this year.”

In my review of the USMCA in October, I wrote: “The USMCA secures North America as a U.S.-led economic bloc, which will be in a better position to wage trade wars against China and other economic rivals.” The arrest of Meng demonstrates that Canada is fully in tow with the U.S. in its trade war drive against China. It is worth noting that the drive to curb China’s growth is a bipartisan position in U.S. ruling circles, so this hostile policy is unlikely to shift with changing administrations.

Unfortunately, Canada Goose may see its growth strategy in China become collateral damage in a geopolitical struggle that is only intensifying. The Chinese market currently makes up 10% of Canada Goose’s global sales. In a report this week, Bloomberg analysts dismissed the notion that Chinese buyers, most of them young, would be swayed by a boycott.

This assessment may be a touch optimistic, especially considering Canada Goose is already competing with parka imitations in China. Investors should be cheering for a quick resolution in the Meng controversy. Otherwise, Canada Goose may be forced to reorient its growth strategy going forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

More on Investing

Supermarket aisle with empty green shopping cart
Investing

$183 for Toilet Paper and Cups: Why We Love Costco Stock

"I literally went up there to get two things."

Read more »

A worker gives a business presentation.
Investing

TFSA Investors: 2 Top Stocks to Buy Before They Rally Any Further

Although plenty of top Canadian stocks have been rallying recently, these two still offer great value and are perfect for…

Read more »

growing plant shoots on stacked coins
Stocks for Beginners

3 TSX Stocks With High Dividend Yields

Are you looking for a great opportunity to bolster your portfolio? Here are three TSX stocks with high dividend yields.

Read more »

financial freedom sign
Stocks for Beginners

1st-Time Investors: 2 Cheap Canadian ETFs to Buy for Financial Freedom 

Investing for the first time but don’t know where to start? Here are two cheap Canadian ETFs that can grow…

Read more »

Money growing in soil , Business success concept.
Dividend Stocks

Got $4,000? 4 Simple TSX Stocks to Buy Right Now

The macroeconomic environment is tense but investing can be simple. Here are four stocks to buy now and book your…

Read more »

Oil pumps against sunset
Energy Stocks

2 Top Canadian Energy Stocks to Buy Offering Dividend Yields Above 6%

These two top Canadian energy stocks are excellent long-term investments and offer unbelievable dividend yields if you buy them today.

Read more »

Target. Stand out from the crowd
Investing

4 TSX Stocks I Own and Will Buy More of if They Fall

These are my four top choices of TSX stocks that may dip in the future, but will pay me back…

Read more »

Dollar symbol and Canadian flag on keyboard
Stocks for Beginners

The 2 Best Canadian Stocks for Beginners Right Now

Stock market beginners in Canada could kickstart their investing journey by buying these two stocks right now.

Read more »