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Beyond China, These Asia ETFs to Feel the Heat of Trade War

Sanghamitra Saha
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The drumbeats of the U.S.-China trade tensions are the loudest, with the former likely to impose 25% tariffs on about $34 billion worth of Chinese exports. Naturally, investors have started to analyze the impact on the entire supply chain (read: Top 5 Foreign ETFs of Q2).

Several Southeast Asian economies could be hit hard if trade spat between the United States and China becomes uglier. These countries export "intermediate goods" like semiconductors to China for assembling and the final products – mainly smartphones and computers – get shipped to destinations like the United States, per senior Asia economist at Capital Economics, as quoted on CNBC.

These is another $16 billion worth of goods scheduled to be tariffed later. Also, President Trump warned of levying 10% tariffs on additional $200 billion of Chinese exports, if the Asian dragon retaliates.

Against this backdrop, let’s take a look at Asian country ETFs that will bear the brunt of escalating trade war worries, part from China itself (read: 5 Broad EM ETFs That Lost the Least in Q2).

Taiwan

Since tech companies are likely take a center position in the U.S.-China trade war, Taiwan appears to be the most vulnerable. The economy is export-oriented and mainly focuses on technology-related products. Taiwan's exports to China make up about 28% of its overall export and the country’s exports to the Chinese mainland and Hong Kong hit an all-time high this March.

Intermediate parts’ exports form about 2% of Taiwan's gross domestic product, according to research firm Capital Economics. In short, if demand for finished Chinese electronics goods is hurt, demand for Taiwanese components will be down too (read: Chip ETFs Tumble as Trade Fears Intensify: Time to Buy?).

Foxconn — one of Taiwan's leading tech companies and a major supplier to Apple AAPL — already issued a word of warning related to its downside risks emanating from the U.S.-China trade spat, as quoted on CNN Money. iShares MSCI Taiwan Capped ETF EWT was off about 7% in the last three months (as of Jul 3, 2018).

South Korea

Next comes South Korea as its top two export destinations are China and the United States, per CNN Money. This country also sends technology parts to China which is needed to build products like laptops and cars. China accounts for about 24% of all South Korean exports, among which 79% is intermediate goods. Around 27% of South Korean exports to China is semiconductors.

Since exports made up about 43% of South Korean GDP last year, trade tensions will surely impact the economy. iShares MSCI South Korea Capped ETF (EWY) retreated about 12% in the last three months.

Malaysia

The fate of Malaysia could be the same. Its main exports are electrical and electronics products (36%) while China is one of the top trading partners (13%). The country’s export engine is on top gear having picked up 18.9% in 2017, marking the strongest growth since 2005. Exports to China have surged 28% year over year. iShares MSCI Malaysia ETF EWM have shed about 14% in the last three months.

Singapore 

Per the article published on CNN Money, Singapore is also a big exporter of electronic components of China. Notably, China (15% of total exports) tops the list of Singapore’s main trading partners.iShares MSCI Singapore Capped ETF EWS lost about 11% in the last three months (as of Jul 3, 2018).

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