Will the Canada-China Spat Hurt These 2 Stocks?

Sun Life Financial Inc. (TSX:SLF)(NYSE:SLF) and Manulife Financial Corporation (TSX:MFC)(NYSE:MFC) will be exposed to more risk due to worsening Canada-China relations.

| More on:

Earlier this month, I’d discussed how increased tensions between Canada and China had hurt the stock price of Canada Goose and how this had the potential to torpedo the company’s growth strategy going forward. Canada Goose stock reached its lowest point since June in trading on Christmas Eve. Tensions between Canada and China have not abated since the arrest of Huawei executive Meng Wanzhou.

Other Canadian business are also exposed to increased risk due to this spat. North American insurance firms have met with success in developing Asia-based markets. This is in large part due to the huge growth of the Asian middle class spurred by the growth of China over the last 20 years.

Worsening tensions have the potential to blacken the reputation of Canadian firms operating in China. A prolonged trade war between the United States and China will also have a negative impact on global growth, which will in turn push down the purchasing power of Asia-based consumers.

Today, we are going to look at two Canadian firms that will be exposed to more risk if tensions between Canada and China darken in 2019.

Sun Life Financial (TSX:SLF)(NYSE:SLF)

Sun Life is a Toronto-based company that provides insurance and financial services to individual and corporate customers in Canada and around the world. Shares of Sun Life have dropped 7% month over month as of close on December 27. The stock is down 14% in 2018.

All the way back in 2010, Sun Life had touted its growth trajectory in China. Its Asian division has been a key driver for growth over the past decade. Sun Life’s net income from Asia took a significant hit in the third quarter. Its underlying net income from Asia declined 15% year over year in Q3 2018 and overall net income fell 30% to $567 million.

Sun Life still managed to beat analyst expectations, but the performance in Asia cast a shadow over the quarter. Slower growth in Asia combined with its reputational risk should be a concern for investors going forward.

Manulife Financial (TSX:MFC)(NYSE:MFC)

Manulife Financial is another Toronto-based insurer that provides financial services. Shares of Manulife have dropped 27% in 2018 so far. The stock has plunged 12% over the past month.

In the third quarter, Manulife’s profit rose 42% year over year to $1.57 billion on the back of 22% growth in its core Asia earnings. This greatly helped offset a drop in its net income for its domestic operations. Manulife stock has also suffered due to a short-selling campaign from Muddy Waters that alleges an ongoing trial could lead to “billions of dollars in losses.”

These developments have combined to push Manulife to 52-week lows, which were reached on the tumultuous Christmas Eve trading day. Although Manulife’s Asia-based business remained strong in Q3 the risks surrounding the company are worrying as we head into 2019. Both stocks now offer increasingly attractive dividends, but investors should expect volatility to spill over into the new year.

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

money cash dividends
Stocks for Beginners

Where to Invest $10,000 in April 2024

If you've already created a diversified portfolio and are looking for more options from a windfall, here is where I…

Read more »

data analyze research
Investing

The Ultimate TSX Stock to Buy With $1,000 Right Now

Brookfield Asset Management (TSX:BAM) is one of the best Canadian stocks to buy for those looking to put capital to…

Read more »

young woman celebrating a victory while working with mobile phone in the office
Dividend Stocks

3 CRA Benefits Most Canadians Can Grab in 2024

You can save on taxes by claiming the dividend tax credit on Fortis Inc (TSX:FTS) shares.

Read more »

A cannabis plant grows.
Cannabis Stocks

Canopy Growth Stock Is Rising But I’m Worried About This One Thing

Canopy Growth stock is soaring as the legalization effort makes real progress in both Germany and the United States.

Read more »

young woman celebrating a victory while working with mobile phone in the office
Investing

3 Roaring Stocks to Hold for the Next 20 Years

These top TSX stocks are excellent long-term buys, given their multi-year growth potential and solid underlying businesses.

Read more »

Two seniors float in a pool.
Dividend Stocks

TFSA: How to Earn $1,890 in Annual Tax-Free Income

Plunk these investments into your TFSA to earn passive income and avoid the taxman.

Read more »

grow dividends
Investing

Here’s My Top 3 TSX Stocks to Buy Right Now

Even though the TSX has been rising, there are still some good bargains out there. Here are three top compounding…

Read more »

Target. Stand out from the crowd
Investing

Prediction: This Canadian Growth Stock Could Double by 2030

Alimentation Couche-Tard (TSX:ATD) is a top growth stock that could do well over the next six or so years.

Read more »