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ETF Winners as 'Phase 1' Deal Eases Trade Tensions

Sweta Jaiswal, FRM

Investors breathed a sigh of relief as the two largest economies reached a preliminary agreement after Trump’s meeting with Chinese Vice Premier Liu He on Oct 11. The documentation of the agreement is expected to be completed in three to five weeks. According to Trump, the countries have reached an agreement on intellectual property, financial services and impressive agricultural purchases. Moreover, the United States has decided to postpone the planned tariff increase of 5% on $250 billion of Chinese goods to Oct 15 (read: Momentum ETFs in Focus on Trade Deal Optimism).

‘Phase 1’ Deal in Details

It is being believed that the preliminary agreement tackles the softer issues between the United States and China. The deal will require Beijing to purchase American farm products valuing around $40 billion to $50 billion annually. The partial accord will also fortify China’s protection for American intellectual property and grant increased access to Chinese market. Mr. Lighthizer informed that the deal necessitates Beijing’s implementation of certain structural changes in screening methodology for imported food and granting approvals to new genetically modified products. He said that the changes will make it easier for increased amounts of American farm products to be exported to China (read: Four Solid Reasons to Buy Small-Cap ETFs Now)..

On the currency front as well, the talks have been encouraging. In exchange for United States considering eliminating China’s name on the currency manipulators list, Beijing has agreed to increase transparency in its currency policy.

Looking Forward

Analysts are worried about both the sides reaching a consensual decision on more tricky issues like Chinese government providing subsidies to its industries and their role in the economy along with Beijing’s restrictions on data transfers across its borders. Moreover, issues like Huawei ban and Dec 15 tariff hikes are yet to be discussed.  Goldman Sachs sees a 60% probability of a 15% tariff hike in early 2020 instead of on Dec 15. Meanwhile, JP Morgan views the recent development as positive but, expected by the market. Notably, Trump is scheduled to meet President Xi in November to attend the summit of the Asia Pacific Economic Cooperation countries in Chile (read: Chip ETFs in Focus as Trump Blacklists More Chinese Tech Firms)..

ETF Winners

US Agricultural/Livestock ETFs

The U.S. agricultural sector has seen the worst due to the trade war. However, the latest developments might bring some relief to the sector. In fact, the U.S. Department of Agriculture recently announced exporting around 142,172 tons of U.S. pork to Beijing in the week ended Oct 3. This was the highest weekly sale to the Chinese market on record. Thus, investors can keep an eye on ETFs like  Invesco DB Agriculture Fund DBA, Teucrium Wheat Fund WEAT, ELEMENTS Linked to theRogers International Commodity Index - Agriculture Total Return RJA, iPath Series B Bloomberg Grains Subindex Total Return ETN JJG and iPath Series B Bloomberg Livestock Subindex Total Return ETN COW (see: all the Agricultural ETFs here).

Semiconductor ETFs

President of the Semiconductor Industry Association, John Neuffer, regards the deal as “welcome news” for the industry. Let’s take a look at some of the semiconductor ETFs that can gain from the cooling down of trade tensions. iShares PHLX Semiconductor ETF SOXX and VanEck Vectors Semiconductor ETF SMH can be given a thought. Investors can also look at leveraged ETFs like Direxion Daily Semiconductors Bull 3x Shares SOXL and ProShares Ultra Semiconductors USD.

Growth ETFs

Growth stocks are high in quality and are likely to witness revenue and earnings growth at a faster rate than the industry average. As such, growth funds tend to outperform during an uptrend. While there are plenty of options in the growth ETF world, we have highlighted five funds that offer broad-based exposure to the U.S. stock market like Vanguard Growth ETF VUG, Schwab U.S. Large-Cap Growth ETF SCHG, iShares Core S&P U.S. Growth ETF IUSG, SPDR S&P 500 Growth ETF SPYG and Vanguard Mega Cap Growth ETF MGK.

China ETFs

The deal can be seen as the beginning of cordial ties between China and the United States. In such a scenario, investors can keep a tab on a few China ETFs like iShares China Large-Cap ETF FXI, iShares MSCI China ETF MCHI, Xtrackers Harvest CSI 300 China A-Shares ETF ASHR and Invesco Golden Dragon China ETF PGJ.

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iShares China Large-Cap ETF (FXI): ETF Research Reports
VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports
Invesco DB Agriculture Fund (DBA): ETF Research Reports
Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR): ETF Research Reports
iShares MSCI China ETF (MCHI): ETF Research Reports
Schwab U.S. Large-Cap Growth ETF (SCHG): ETF Research Reports
Vanguard Growth ETF (VUG): ETF Research Reports
iPath Series B Bloomberg Grains Subindex Total Return ETN (JJG): ETF Research Reports
Invesco Golden Dragon China ETF (PGJ): ETF Research Reports
SPDR Portfolio S&P 500 Growth ETF (SPYG): ETF Research Reports
Teucrium Wheat Fund (WEAT): ETF Research Reports
Vanguard Mega Cap Growth ETF (MGK): ETF Research Reports
iShares Core S&P U.S. Growth ETF (IUSG): ETF Research Reports
Direxion Daily Semiconductor Bull 3X Shares (SOXL): ETF Research Reports
Sprint Corporation (S) : Free Stock Analysis Report
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