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China's Retaliation Puts These ETFs and Stocks in Focus

Sweta Killa

The renewed trade jitters resulted in a tailspin in the global stock market, more specifically across Wall Street. China is seeking to impose as much as 25% tariff on $60 billion worth of U.S. imports effective June 1 in retaliation against Donald Trump’s tariff increase to 25% from 10% on $200 billion worth of Chinese goods effective May 10.

The second-largest country has slapped a duty on around 5,140 products with waivers to some companies from the tariff increase, which could range between 5% and 25%. Products that will face 25% tariff include food products such as meat, honey, bamboo, frozen peas and spinach, roasted coffee, green teas, various oils, fruit juice and stuffed pasta; drinks such as beer, wine and gin; building materials such as building stone, bricks, panels, floor tiles, and pipes and tubes; and manufacturing equipment such as vacuum molding, wire-drawing and cable-making machines.

On the consumer side, televisions, headphones, DVD players, cameras, telescopes, alarm clocks, instruments such as pianos, buttons, and fishing rods are now also on the list of higher tariffs (read: Should Consumer ETFs Fear U.S.-China Trade Clash At All?).

The rise in trade tariff war will add to the woes of already slowing economic growth. According to Klaus Baader of Societe Generale, if current U.S. measures and those likely to be taken by China remain in place, GDP can be expected to be hit to the tune of 0.5% in China, 0.25% in the United States, and 0.15% globally. If America levies tariffs on all Chinese goods and China retaliates, these losses could easily double. Per Morgan Stanley, the potential cost headwinds of 25% tariffs on all Chinese exports to the United States could be in the range of 1.0-1.5% of the index’s net income.

Given this, we have highlighted several ETFs and stocks that were hit hard by new tariffs and will be in focus in the weeks ahead:

Apple Inc. AAPL

Apple is engaged in designing, manufacturing and marketing mobile communication and media devices, personal computers, and portable digital music players. iPhones and other products are subject to higher tariff of 25% that will dent demand and profits. Additionally, sales are expected to slow down in China on spiraling trade war. As such, shares of Apple dropped 5.8% — its biggest drop of the year — on the day. In fact, the iPhone maker has lost around 12% of its market value since Trump threatened to impose additional tariffs on May 5. The stock currently has a Zacks Rank #3 (Hold) and has a VGM Score of A.

Caterpillar Inc. CAT

It is a manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. Given Caterpillar’s significant exposure to China, the stock plummeted 5.1% on the day. The stock has a Zacks Rank #3 and a VGM Score of B (read: 6 Stocks That Mainly Dragged Dow Jones ETFs on Tuesday).

The Boeing Company BA

It is the world's largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems. Being declined nearly 5% on concerns over trade with China. According to the tweet from the editor-in-chief of Chinese newspaper Global Times, the aerospace giant could face targeted retaliation from the Chinese government as part of the ongoing trade battle between the United States and China. Boeing has a Zacks Rank #3 and a VGM Score of C.

Archer Daniels Midland Company ADM

This company procures, transports, stores, processes, and merchandises agricultural commodities and products. The trade war will hit its sorghum and soybean origination business. The stock lost more than 4% on May 13 trading session. It has a Zacks Rank #3 and a VGM Score of D (read: Forget Trade Fears, Invest in Defensive Sector ETFs).

iShares MSCI Global Agriculture Producers ETF VEGI

This fund provides global exposure to 142 companies that produce fertilizers and agricultural chemicals, farm machinery, and packaged foods, and meats by tracking the MSCI ACWI Select Agriculture Producers Investable Market Index. American firms account for 45% of the assets while Canada, Norway, Japan and Italy round off the next four spots. The ETF is less popular and illiquid with $29.1 million in AUM and around 3,000 shares in average daily volume. It charges 39 bps in fees per year from investors and has lost 3% on the day.

VanEck Vectors Agribusiness ETF MOO

This fund is by far the most popular choice in the space with AUM of about $741.5 million. It tracks the MVIS Global Agribusiness Index, which offers exposure to companies involved in agri-chemicals, animal health and fertilizers, seeds and traits, farm/irrigation equipment and farm machinery, aquaculture and fishing, livestock, cultivation and plantations, and trading of agricultural products. The fund holds 58 securities in its basket and charges 54 bps in annual fees. Volume is good as it exchanges nearly 70,000 shares. MOO was down 2.7% on the day.

iShares PHLX Semiconductor ETF SOXX

With AUM of $1.1 billion, this ETF offers exposure to 30 U.S. companies that design, manufacture, and distribute semiconductors by tracking the PHLX SOX Semiconductor Sector Index. It charges 47 bps in annual fees and trades in average daily volume of 745,000 shares. The product has a Zacks Rank #3 with a High risk outlook and declined 4.7% on May 13 (read: US-China Trade Tensions Re-Escalate: 7 Vulnerable ETF Areas).

Industrial Select Sector SPDR XLI

This is the most popular ETF in the industrial space with AUM of $10.4 billion and average daily volume of 14 million shares. The fund follows the Industrial Select Sector Index, holding 70 stocks in its basket. More than one-fourth of the portfolio is allocated to aerospace & defense while machinery, industrial conglomerates, and road & rail make up for a double-digit share each. This ETF charges 13 bps in fees per year and has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook.

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