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Country ETFs to Watch as Trade Rout Continues

Sweta Jaiswal, FRM

A war takes its own shape, no matter which side wages it. The Sino-US trade war has resulted in some damaging effects on both the economies. However, there are certain countries which are silently gaining from the trade riot. Not only through rising levels of exports, some countries are benefiting from increased foreign investments, job creation, improving infrastructure and sharing of technology know-how.

How is Trade War Helping Other Countries?

In an attempt to escape Trump’s heavy tariffs on Chinese imports, U.S. companies with manufacturing units in China are increasingly shifting to Southeast Asian countries like India, Vietnam, Cambodia, Malaysia, the Philipines, Bangladesh and Ethiopia. These companies mostly belong to sectors like technology, clothing and footwear. One of the American Chamber of Commerce’s surveys in China showed that 40% of such companies are either planning or have shifted manufacturing operations from China.

U.S. companies have also increased their imports from the countries with the Generalised System of Preference or GSP status such as India, Thailand, Cambodia, Indonesia and Turkey. In fact, American companies could save around $285 million in the first quarter of 2019 in comparison with $63 million a year ago. According to the Washington DC-based Coalition for GSP, 90% of the higher GSP imports consist of products under the Section 301 list. However, Trump terminated India’s preferential status last month.

Country ETFs to Watch

Vietnam has emerged as the largest beneficiary of the trade war between Beijing and Washington. Vietnamese exports to the United States have surged around 30% between January and May 2019. In fact, Vietnam's largest export market is the United States. The country’s trade surplus with the United States has been growing rapidly. During January-May 2019, it widened to $17 billion from $12.9 billion a year ago. Moreover, companies are shifting manufacturing facilities to Vietnam. Among many companies, Nintendo Co., Ltd. NTDOY is planning to move part of its video game console productionfrom China to Vietnam.

VanEck Vectors Vietnam ETF VNM

The VanEck Vectors Vietnam ETF tracks before fees and expenses, the price and yield performance of MVIS Vietnam Index. The fund has amassed $473.7 million in its asset base and charges a fee of 68 bps a year. It has a Zacks ETF Rank of 3 (Hold) with a Medium risk outlook (read: US Imposes Duties on Vietnam Steel: ETFs in Focus).

Taiwan has also been witnessing additional exports of typewriter parts, office machines and phone parts to the United States. In fact, Taiwan has gained around 2.1% of the GDP from the new business.

iShares MSCI Taiwan ETF EWT

The iShares MSCI Taiwan ETF seeks to track the investment results of the MSCI Taiwan 25/50 Index. The fund has amassed $3.06 billion in its asset base and charges a fee of 59 bps a year. It has a Zacks ETF Rank of 1 (Strong Buy) with a Medium risk outlook (read: US-China Trade Tensions Re-Escalate: 7 Vulnerable ETF Areas).

Malaysia has addedaround 1.3% of the GDP from the new business. It has been witnessing increased exports of semiconductor devices and electronic integrated circuits to China. Moreover, Muhammed Abdul Khalid, an economic advisor to Prime Minister Mahathir Mohamad, expects increasing number of manufacturers to move to Malaysia from China in order to escape tariffs.

iShares MSCI Malaysia ETF EWM

The fund tracks the MSCI Malaysia Index. It has amassed $450 million in its asset base and charges a fee of 47 bps a year. It has a Zacks ETF Rank of 3 with a Medium risk outlook.

Argentina and Brazil have also been seeing a rise in exports of soybean to China. It is worth noting here that China accounts for around two-third of world soybean imports. Per Nomura, Argentina has added roughly 1.2% whereas Brazil has added around 0.7% of the GDP from the new business.

Global X MSCI Argentina ETF ARGT

The fund tracks the MSCI All Argentina 25/50 Index. It has amassed $100.3 million in its asset base and charges a fee of 59 bps a year. It has a Zacks ETF Rank of 3 with a Medium risk outlook.

iShares MSCI Brazil ETF EWZ

The fund tracks the MSCI Brazil 25/50 Index. It has amassed $9.28 billion in its asset base and charges a fee of 59 bps a year. It has a Zacks ETF Rank of 2 (Buy) with a High risk outlook.