China's recent focus on "common prosperity" spells bad news for U.S. multinational companies with heavy exposure to the emerging market, and these stocks could have the most to lose, according to Bank of America. "Bigger cake with more pieces is how a China finance official described Common Prosperity. But it could mean less cake for U.S. multinational companies," Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, said in a note Thursday. Chinese President Xi Jinping has called for moderate wealth for all – known as "common prosperity." He's pushed for curbs on "excessive" income and for the wealthy to give back more to society. Alibaba said it will invest $15.5 billion over the next few years into "common prosperity" initiatives, joining a chorus of technology giants pouring money into Xi's goal to spread wealth. The movement could have a ripple effect on a slew of U.S. companies that generate revenue from China, Bank of America said. Those affected span across a variety of industries, including consumer, autos, gaming and lifestyle, the bank said. "The U.S. consumer sector has both direct and indirect exposure to China, both via sales exposure and supply chain," Subramanian said. "China's focus on closing the wealth gap could depress demand for high-end U.S. luxury brands," she added. China has been a key end-market for many U.S. companies in the life sciences and diagnostic tools industry over the past decade as the country increased investment in health care, biomedical research, food safety testing, and environmental monitoring, the bank noted. Among the S & P 500 companies, Agilent , Mettler-Toledo and Waters have some of the highest sales exposure to the region, the bank said, Elsewhere, the bank singled out electric car maker Tesla as among the companies most affected by Beijing's crackdown. The Elon Musk-led company has about 20% sales exposure to the region, according to Bank of America. Amid the policy uncertainty, investors have been cutting back exposure to Tesla. Active funds have been reducing their exposure to the stock throughout this year, and the stock is net short by hedge funds, Bank of America found. Tesla could come under more pressure if the "Buy China" sentiment prevails, the strategist said. The stock is up over 6% this year, compared to the S & P 500's roughly 18% gain. Within the automotive sector, suppliers may be "disproportionately impacted" from China, the bank said. "Many suppliers are true multinational companies that maintain wholly owned or consolidated operations in the region," Bank of America said. Suppliers with the most pronounced China exposure include Adient , Aptiv , BorgWarner , and Lear and Visteon , the bank said. Aptiv and BorgWarner are in the S & P 500 benchmark.
Photo taken on Aug. 19, 2021 shows a stock market trend, Shiyan, Hubei Province, China.
Costfoto | Barcroft Media | Getty Images
China's recent focus on "common prosperity" spells bad news for U.S. multinational companies with heavy exposure to the emerging market, and these stocks could have the most to lose, according to Bank of America.