US-China Truce Talks Begin: ETFs To Shine

The trade tussle between the world’s strongest economies has finally come to a point that investors were hoping for. The positive outcome of the Group of 20 summit in Japan between Presidents Donald Trump and Xi Jinping has been largely cheered by investors.

Buoyed by the positive talks, Asian markets were observed to be trading higher with Japan’s NIKKEI 225 Index rising 2.13% and Shanghai Composite Index climbing 2.2%. Indices in Taiwan, Singapore, Indonesia and Australia also moved up.

Studying the current scenario, Stephen Innes, managing partner at Vanguard Markets, said “after spending the better part of two months in trade war purgatory and with G-20 done and dusted, risk markets have responded to Saturday’s events in a reveller tone. Indeed, investors heaved a massive, but exhausted, sigh of relief.”

What’s on the Peace Agreement?

Trump and Jinping have agreed to resume trade talks and head for a truce. In this regard, Trump is set to postpone the imposition of tariffs on the remaining $300 billion of Chinese imports which cover almost all exports from China to the United States. However, the recently revised higher tariffs will remain intact. Moreover, Trump has agreed to allow U.S. companies to resume sales to China’s most prominent telecommunications equipment maker — Huawei.

Meanwhile, Trump has mentioned that China is expected to buy good quantities of food and agricultural products from the United States to settle the bilateral trade imbalance.

Will the Truce Talk be Successful?

If statistics are to be believed, 11 rounds of talks between the presidents have failed so far. The failure was usually followed by a revision of existing or imposition of new tariffs. In this regard, Trump mentioned in his statement that the tariffs are being postponed for the “time being” and any failure in resolution might lead to imposition of fresh tariffs.

In this regard, Patrick Wacker, a fund manager for emerging-markets fixed income at UOB Asset Management in Singapore pointed out that the agreement did not address any major issue behind the trade dispute. He added, “we are likely to see a similar pattern following the G20 in Buenos Aires: a truce followed by further escalation.”

However, the economies have been facing high tariffs with certain important economic fundamentals like manufacturing levels, consumer sentiment and trade deficit being hurt in the past year. In such a scenario, a truce is necessary for both the economies. Some analysts are of opinion that Trump will be trying to resolve the trade issues with China by the end of this year as it might hamper his election campaign in 2020.

Moreover, China’s technological advancement pace will suffer a blow if the trade war continues because of its dependency on U.S. technology companies.

ETFs to Gain

Here we list certain ETFs which are set to gain on easing Sino-US trade tensions:

iShares PHLX Semiconductor ETF SOXX

This ETF offers exposure to 30 U.S. companies that design, manufacture and distribute semiconductors by tracking the PHLX SOX Semiconductor Sector Index. The fund has amassed $1.48 billion in its asset base and charges a fee of 47 bps a year. It has a Zacks ETF Rank of 2 (Buy) with a High risk outlook (read: Trump Bans More Chinese Tech Companies: ETFs in Focus).

VanEck Vectors Semiconductor ETF SMH

This ETF has AUM of $1.14 billion. The fund provides exposure to 25 global securities by tracking the MVIS US Listed Semiconductor 25 Index. The fund charges an expense ratio of 0.35%. It has a Zacks ETF Rank #2 with a High risk outlook (read: Will Semiconductor ETFs Survive the Huawei Ban?).

Technology Select Sector SPDR Fund XLK

The Technology Select Sector SPDR Fund seeks to provide investment results which, before expenses, correspond generally to the price and yield performance of the Technology Select Sector Index. This ETF has AUM of $21.24 billion. The fund charges an expense ratio of 0.13%. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Top Sectors of 1H & Their Top Stocks).

Vanguard Information Technology ETF (HN:VGT)

The Vanguard Information Technology ETF seeks to track the performance of the MSCI US Investable Market Information Technology 25/50 Transition Index. This ETF has AUM of $20.41 billion. The fund charges an expense ratio of 0.10%. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: Tech Stocks Log Seven-Year Best Spell: ETF Winners).

Reality Shares Nasdaq NexGen Economy China ETF BCNA

This fund seeks long-term growth by tracking the investment returns, before fees and expenses, of the Reality Shares Nasdaq Blockchain China Index. It comprises 40 holdings. The fund’s AUM is $2.2 million and expense ratio is 0.78% (read: Top and Flop ETFs So Far in Q2).

Global X MSCI China Communication Services ETF CHIC

This fund tracks the MSCI China Communication Services 10/50 Index. It comprises 27 holdings. The fund’s AUM is $22.7 million and expense ratio is 0.65%.

Vanguard FTSE Pacific ETF VPL

The Vanguard FTSE Pacific ETF tracks the performance of the FTSE Developed Asia Pacific All Cap Index. The fund charges an expense ratio of 0.09%. It has a Zacks ETF Rank #3 (Hold) with a Low risk outlook.

iShares S&P 500 Growth ETF IVW

The iShares S&P 500 Growth ETF seeks investment results that match the price and yield performance of S&P 500 Growth Index. This ETF has AUM of $23.49 billion. The fund charges an expense ratio of 0.18%. It has a Zacks ETF Rank #2 with a Medium risk outlook.

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