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ETF Winners as Sino-US Trade War Tensions Ebb

Sweta Jaiswal, FRM

The markets are gaining on some positive developments mainly on two fronts — U.S.-Sino trade war and European Central Bank’s promise of continuous stimulus.  Accordingly, the Dow Jones Industrial Average gained 0.17%, the S&P 500 rose 0.29% and the Nasdaq Composite increased 0.3%.

The rally was observed in Asian markets as well with the MSCI’s broadest index of Asia-Pacific shares outside Japan rising 0.3%. Meanwhile, Japan’s Nikkei gained 1.0% hitting a four-month high mark (read: Momentum ETFs & Stocks in Focus as Trump Delays Tariff Hike).

Here we discuss the recent major developments in the trade war scenario.

China’s Request to Narrow Trade Talks

As both the nations are soon going to meet for negotiation talks, China has expressed its interest to focus on just trade initially. It wants to put more complicated issues like national security aside for the time being. Chinese officials believe this will help fast-tracking the efforts to resolve the trade dispute (read: SOYB ETF in Focus as China Opens Door to Argentine Soy Meal).

China wishes to assign another team for more sensitive geopolitical matters, including U.S. arms sales to Taiwan and its claims related to United States’ role in Hong Kong protests. However, there is some ambiguity in identifying whether a matter should be considered a trade issue or classified as a national security threat. Earlier, the countries had trouble reaching a common ground for the same reason. As China kept emphasizing on considering data transfers and cloud computing  as national security issues, the United States kept pressing that these issues fall under trade and investment.

Meanwhile, Trump has shown some inclination toward an interim trade deal with China.

In fact, officials from both the countries are scheduled to meet soon, before the top trade negotiators come together in October.

Trump’s Gift on People's Republic of China’s Anniversary

Trump recently postponed the planned tariff increase of 5% on $250 billion of Chinese goods from Oct 1 to Oct 15 as “a gesture of goodwill.” The tariff delay request was made by the Vice Premier of China, Liu He, due to the 70th anniversary of the People’s Republic of China on Oct 1 (read: ETFs in Focus as Trade War Takes a Toll on Chinese Exports).

The decision followed China's move to exempt some U.S. goods from its tariffs, scheduled to take effect from Sep 17. Beijing announced its first batch of tariff exemptions for 16 types of U.S. products, including some anti-cancer drugs and lubricants, as well as animal feed ingredients, including whey and fish meal, according to a Ministry of Finance statement.

Also, China announced renewed purchases of U.S. farm goods. Per the source, China has purchased a minimum of 10 cargoes, or 600,000 tonnes, of U.S. soybeans for October-December shipment.

ETF Winners to Buy

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. Thus, investors can keep an eye on ETFs like Teucrium Wheat Fund WEAT, MLCX Grains ETN GRU, iPath Bloomberg Grains Subindex Total Return ETN JJG and iPath Dow Jones-UBS Livestock Subindex Total Return ETN COW (see: all the Agricultural ETFs here).

Semiconductor ETFs

Meanwhile, let’s take a look at some of the semiconductor ETFs that can gain from cooling down of trade war. iShares PHLX Semiconductor ETF SOXX, VanEck Vectors Semiconductor ETF SMH, Direxion Daily Semiconductors Bull 3x Shares SOXL and the ProShares Ultra Semiconductors USD can be given a thought.

Growth ETFs

Growth stocks refer to high-quality stocks that 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 from the category 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

Against this backdrop, 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.