Goldman Sachs: Focus on the changes in China's export pattern to the US, gold price rise has structural support

Goldman Sachs released a research report stating that the Trump administration has significantly adjusted its tariff policy, leading to uncertainty in the US economic outlook, which has become a focus of the market's attention. Nobel laureate economist Paul Krugman predicts that the probability of a US recession has risen to 38%. In terms of individual stocks, Cambricon (688256.SH) was upgraded to "buy", while Weichai Power (000338.SH, 02338, rated as buy) continues to be recommended. The mid-term (5-7 years) of the US bond yield curve is supported by policy expectations, but caution is needed regarding inflation stickiness and MBS duration risk; the resilience of the US dollar comes from yen hedging (92%), tightening offshore renminbi liquidity, and rebounding European energy prices; the structural bullish outlook for gold (London OTC positions +112%, Shanghai Gold Exchange positions +47%). Goldman Sachs' main points are as follows: Focus on China's Export Tracking China's Export Tracking - Interpretation of Enterprise Dynamics. The Goldman Sachs China team has introduced the "China Export Tracking" series, focusing on the changes in China's export pattern to the US under the backdrop of increased US-China tariffs. In this tracking report, the bank conducted exclusive surveys with 46 companies, whose products account for nearly 70% of China's total exports to the US. Through these surveys, the bank will assess the impact of changes in the trade situation on the scale and pace of Sino-US trade. In the first edition report, the bank asked the 46 companies the following questions in the week of April 14, 2025: 1) How have export orders to the US (especially products produced in China) changed compared to before the additional tariffs were imposed; 2) Have price negotiations begun; 3) What are their views on alternative supply chains and inventory? Primary Focus on Recession Risks Triggered by Tariffs Primary Focus - Recession Risks Triggered by Tariffs. The Trump administration has significantly adjusted its tariff policy, leading to uncertainty in the US economic outlook, which has become a focus of the market's attention. The bank discussed with three economic observers their views on recession risks: Nobel laureate Paul Krugman believes that due to high uncertainty, the likelihood of a recession is high, and policy reversals may exacerbate this uncertainty; Goldman Sachs' Jan Hatzius states that a recession is not the baseline expectation, but risks have increased, although policy reversals could help stabilize the economy; Oren Cass of the American Beijing Compass Technology Development organization believes that Trump's trade policy may not necessarily lead to a recession, but could instead promote improvement in the US economy. The bank then evaluated the market's vulnerability to a recession and discussed how to protect investment portfolios, as well as the impact of tariff policy adjustments on China and possible pathways for tariff relaxation (which are limited). Latest Developments - Cambricon upgraded, Weichai Power Cambricon - Driven by China's cloud capital expenditures, rating upgraded to buy. As pointed out by the bank in November 2024, Cambricon's revenue growth, inventory, contract liabilities, and number of engineers are all showing signs of recovery, which was continued in the first quarter of 2025 financial report. The bank expects Cambricon to achieve profitability in 2025, with the potential for a pre-tax profit margin of 26% by 2030. In line with the reports on Semiconductor Manufacturing International Corporation, NAURA Technology Group, and Ninestar Corporation, as well as the summaries of the launch of Chinese AI servers and the investigation of private tech companies, the bank is optimistic about the role of advanced processes and generative AI in driving China's semiconductor development, as well as cloud capital expenditures in the Chinese AI field. Considering the larger market scale and lower computing power requirements for inference, and the smaller scale of AI server clusters compared to training, the bank believes that customers are more likely to diversify their supply chains in the inference domain. Therefore, the bank has upgraded the rating of Cambricon to "buy" and adjusted the 12-month target price to 1223 yuan. Weichai Power - First quarter performance preview for 2025: Expected net profit growth of approximately 20% excluding Kaiser Group, rated as buy (continued recommendation). Weichai Power is scheduled to announce its first quarter 2025 results on April 29. Based on third-party data at the industry and company levels, the bank expects Weichai Power's net profit to decrease by about 5% year-on-year (revenue to increase 3%), mainly due to the drag from Kaiser Group, with most one-time charges related to personnel optimization expected to be accounted for in the first quarter of 2025. Excluding Kaiser Group, it is expected that Weichai Power's net profit in this quarter will increase by about 20% year-on-year, mainly due to an increase in profit margins, which will further support the bank's judgment on its long-term profitability enhancement. The 12-month target price is 22 Hong Kong dollars/24 yuan. Interpretation of Financial Reports - TSMC, Fuyao Glass Industry Group, Xinxiang Richful Lube Additive TSMC - Performance review. 2025 outlook better than expected, rated as buy. TSMC maintains its full-year 2025 revenue and capital expenditure guidance, in line with Goldman Sachs' expectations. Given the market's general concerns about tariffs causing a slowdown in end demand, the bank believes that this guidance will be a pleasant surprise for most investors. Additionally, the company stated that it has not been in negotiations with other companies regarding potential joint ventures or technology transfers, which helps alleviate investor concerns. However, while the management's expectation of a 2-3 percentage point drop in gross margin over the next five years due to overseas expansion is different from earlier expectations, they now expect this decline to increase to 3-4 percentage points over the next few years. In addition, management's attitude towards the prospects of CoWoS technology is slightly cautious, implying a potential weakening of demand for artificial intelligence. The 12-month target price has been slightly adjusted from 1200 new Taiwan dollars to 1190 new Taiwan dollars. Fuyao Glass Industry Group - First quarter performance review for 2025. Net profit meets expectations, limited impact from tariffs, rated as buy.The performance for the first quarter of 2025 announced by Group is in line with the expectations of Goldman Sachs and the market consensus. After the increase in US tariffs, management expects new orders to gradually return to normal in the next two months. Similar to the impact of tariffs in 2018, Fuyao Glass Industry Group is expected to pass on most of the additional tariff costs to the automotive clients. With the flexibility of its global production base and its leading market position, the bank believes that Fuyao Glass Industry Group is one of the most resilient automotive parts suppliers. The bank has lowered its earnings per share expectations for 2025-2027 by 5-7%, lowered its 12-month target price by 6%-5% to 66 RMB/61 HKD.Xinxiang Richful Lube Additive - Performance in the first quarter of 2025 meets expectations, with growth back on track, rated as a Buy. Xinxiang Richful Lube Additive's net profit in the first quarter of 2025 was 195 million yuan (a year-on-year increase of 28%), which basically meets Goldman Sachs' expectations of 192 million yuan. The gross profit margin was lower than expected, but due to operating costs lower than expected and other income higher than expected, net profit still meets expectations. Revenue was 849 million yuan (a year-on-year increase of 19%), also basically meeting Goldman Sachs' expectations. Although the company did not disclose the regional distribution of revenue, according to China's customs export data (a year-on-year increase of 13%) showing a continued recovery in exports, the bank expects domestic sales to accelerate. Given that Xinxiang Richful Lube Additive is a major beneficiary of import substitution opportunities in the field of special chemicals in China, especially against the backdrop of escalating trade tensions between the US and China, the bank reiterates its "Buy" rating. The 12-month target price is 73 yuan. Global Perspective | Global Interest Rates and Foreign Exchange, Gold Global interest rate traders - a bumpy road to interest rate normalization. Signs of normalization of the US Treasury market have led to some rebound in interest rate market segments that have been hit hard by recent volatility, and the traditional safe-haven properties of US Treasuries have partly been restored. However, achieving a sustained rebound driven by loose policy that can effectively resist growth risks still faces many uncertainties. Despite the steepening of the yield curve as the ultimate trend due to factors such as growth risks and support for rising term premiums, Powell's speech reminds the bank that the process of a rapid steepening of the curve (a steepening of the bull market) may be fraught with twists and turns. Therefore, the bank still tends to establish long positions in the middle of the yield curve. George Cole Global foreign exchange traders - no clear signs of large-scale outflows from US assets. As the bank's interest rate strategist pointed out, the recent volatility in the US Treasury market is more likely due to leveraged investors unwinding positions rather than actual massive fund selling. If a large amount of money flows back from US dollar assets to renminbi, theoretically it would create downward pressure on the USD/CNY exchange rate, but the actual exchange rate trend is the opposite. While there may be some selling pressure in the US Treasury market, there is currently no clear evidence of significant foreign net selling. In fact, recent fund flow data shows that investors have not completely withdrawn from US government bond funds, but have shifted from holding long-term bond funds to short-term bond funds. Kamakshya Thiruvadi Gold - still an attractive entry point. Since the closing price on April 8th, the price of gold has risen by about 7%. Data shows that this increase was not driven by a large influx of speculative funds. The initial drop in gold prices was after the stock market sell-off on April 2nd, mainly due to liquidation caused by additional margin calls, as confirmed by CFTC data, there was no adjustment in short positions. Since then, the open interest in COMEX gold futures has remained relatively stable, with the bank estimating that speculative funds re-entering contributed only about 1 percentage point of this 7% increase. Given that speculative positions in COMEX gold futures are still at moderate levels, the bank believes that the rise in gold prices has structural support, with low risks of significant liquidation in the short term, further reinforcing the bank's upward expectation of the price of gold reaching $3,700 per ounce by the end of the year.