U.S. Markets closed

All Eyes on the G-20 Summit: ETFs to Gain

Sweta Jaiswal, FRM
As the U.S.-China agree on a pause in trade hostilities, a few ETFs are poised to gain.

Investors have been long waiting for a truce between the world’s strongest economies since the trade war begun in July 2018. After the upheaval Trump caused with his tweet on May 5 this year, the longing for cease-fire in this “attack and retaliation” game is even stronger. In such a scenario, all investors are closely watching every development in relation to the Group of 20 leaders summit in Japan.

Asian markets were observed to be trading higher during early hours on Thursday buoyed by optimism surrounding positive results from the G-20 summit meet between Presidents Donald Trump and Xi Jinping. Accordingly, Japan’s NIKKEI 225 Index rose 1.19%, Hong Kong’s Hang Seng Index was up 1.16% and Shanghai Composite Index climbed 0.54%. Indices in South Korea, Singapore, Indonesia and Australia also moved up.

What’s Fueling the Optimism?

Per a South China Morning Post article, Trump and Jinping have possibly agreed to resume trade talks and head for a truce. In this regard, Trump is set to postpone the imposition of tariffs on the remaining $300 billion of Chinese imports which covers almost all exports from China to the United States. However, nothing can be said with certainty before formal announcements are made.

Moreover, US Treasury Secretary Steven Mnuchin said that a trade deal between United States and China is “90 per cent completed,” in an interview with CNBC on Wednesday. Also, Trump has been stressing on the importance of a truce for the Chinese economy. In an interview with Fox Business Network, he said “the Chinese economy’s going down the tubes. They want to make a deal more than I do.”

Why is a Truce Needed?

A war takes its own shape, no matter which side wages it. Both the economies have been facing high tariffs with certain important economic fundamentals like manufacturing levels, consumer sentiment and trade deficit being hurt in the past year. In such a scenario, a truce is necessary for the well-being of both the economies.

What Does US Have at Stake?

Possibly triggered by Trump’s imposition of higher tariffs on $200 billion of imports from China in May, the U.S. merchandise-trade deficit widened to a five-month high level ( per a Bloomberg article). The international-trade deficit was $74.5 billion in May, up $3.6 billion from $70.9 billion in the prior month. It is assumed, the 3.7% rise in imports may have been caused by advance placement of orders to escape the new tariffs that were to be effective from Jun 1. Analysts believe that further elevation in the trade deficit can hurt the GDP of the country.

Moreover, looking at the other side, imposition of tariffs by China on U.S. imports is making U.S.-made goods expensive, thus impacting exports adversely.

How is it Hurting China?

The Chinese economy has been grappling with slowing growth momentum, slumping industrial growth, shrinking investments and softening retail sales, among others. In fact, industrial production growth in May slipped to a 17-year low. Furthermore, there are rising concerns over the health of the financial system of the economy, with the takeover of Baoshang Bank by the government because it was facing serious financial crisis. Moreover, the Chinese interbank lending rate has been observed to decline to its lowest level in a decade.

In such a scenario, worsening of trade ties with America might make it difficult for the Chinese economy to meet its 6-6.5% economic growth forecast for 2019. Notably, The International Monetary Fund recently slashed its China forecast for economic growth in 2019 to 6.2% over an escalating trade spat with the United States.

ETFs to Gain

If the truce talks between the nations work out, the ETFs which are heavily weighted on sectors like technology, automobiles and commodities are expected to gain. Also, strength in growth-oriented domestic and global funds is expected.

Here are a few ETFs to watch out for in case things take a positive turn —

Technology Select Sector SPDR Fund XLK

The Technology Select Sector SPDR Fund seeks to provide investment results which, before expenses, correspond generally to the price and yield performance of the Technology Select Sector Index. The fund charges an expense ratio of 0.13%. It has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: Tech Stocks Log Seven-Year Best Spell: ETF Winners).

Vanguard Information Technology ETF VGT

The Vanguard Information Technology ETF seeks to track the performance of the MSCI US Investable Market Information Technology 25/50 Transition Index. The fund charges an expense ratio of 0.10%. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: How China Could Retaliate Huawei Ban & Its Impact on ETFs).

Invesco Golden Dragon China ETF PGJ

This fund follows the NASDAQ Golden Dragon China Index, which offers exposure to the U.S. exchange-listed companies that are headquartered or incorporated in the People’s Republic of China. The fund charges an expense ratio of 0.70%. It has a Zacks ETF Rank #2 (Buy) with a High risk outlook (read: China Disappoints With Sluggish Numbers: 5 ETFs in Focus).

Vanguard FTSE Pacific ETF VPL

The Vanguard FTSE Pacific ETF tracks the performance of the FTSE Developed Asia Pacific All Cap Index. The fund charges an expense ratio of 0.09%. It has a Zacks ETF Rank #3 (Hold) with a Low risk outlook.

SPDR S&P 500 ETF SPY

The SPDR S&P 500 ETF seeks to provide investment results which, before expenses, correspond generally to the price and yield performance of the S&P 500 Index. The fund charges an expense ratio of 0.09%. It has a Zacks ETF Rank #2 with a Medium risk outlook.

Vanguard Growth ETF VUG

The Vanguard Growth ETF seeks to track the performance of the CRSP U.S. Large Cap Growth Index. The fund charges an expense ratio of 0.04%. It has a Zacks ETF Rank #1 with a Medium risk outlook (read: 5 Ultra-Cheap Top-Ranked Growth ETFs to Buy Now).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Vanguard FTSE Pacific ETF (VPL): ETF Research Reports
 
Invesco Golden Dragon China ETF (PGJ): ETF Research Reports
 
Vanguard Information Technology ETF (VGT): ETF Research Reports
 
Vanguard Growth ETF (VUG): ETF Research Reports
 
Technology Select Sector SPDR Fund (XLK): ETF Research Reports
 
SPDR S&P 500 ETF (SPY): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report