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Global Stimulus & Huawei Relief Boost Markets: ETFs in Focus

Sweta Jaiswal, FRM

The Sino-U.S. trade war, slowing global economy and Brexit uncertainty have been keeping investors on their toes. In such a scenario, a stimulus to boost the economies was much awaited. Cheering investors globally, China and Germany recently announced some measures to boost their economies. Moreover, positive news from Washington regarding the Huawei ban has bolstered investor confidence (read: Spooked About Recessionary Fears? Bet on Sin Stocks & ETFs).

Accordingly, major U.S. indices like the S&P 500 Index was up 1.2% along with a 0.96% rise in the Dow Jones Industrial Average Index and 1.4% gain of the NASDAQ Composite Index on Aug 19. Moreover, MSCI’s broadest index of Asia-Pacific shares outside Japan increased 0.53% along with a 0.54% gain in Japan’s Nikkei index. (read: Safe-Haven ETFs Rally on Global Unrest: ETFs to Snap Up).

Let’s take a look at the steps taken by the countries and the ETFs positioned to gain from the move.

China’s Rate Reform Policy

Beijing recently rolled out a key rate reform to lower funding costs for firms in order to lend support to China’s struggling economy. It is worth noting here that China’s industrial production growth in July has highly disappointed investors. Battered by escalating trade war tensions, the industrial growth rate in July slipped to the lowest level since February 2002. China’s retail sales growth was also weak, indicating softening consumption levels. As a result of the new policy, banks must fix rates on new loans by mainly referring to the Loan Prime Rate (LPR) and use LPR as the benchmark for setting floating lending rates.

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, KraneShares CSI China Internet ETF KWEB and Invesco Golden Dragon China ETF PGJ.

Germany Hinting at a Possible Stimulus

Europe’s largest economy, Germany’s second-quarter 2019 GDP fell 0.1% from the prior quarter. It is being feared that the German economy is slowly approaching recession. Amid the speculations, German Chancellor Angela Merkel commented that the country's government is open to taking extra debt if required, to boost the economy. Moreover, German Finance Minister, Olaf Scholz said that Berlin could arrange up to 50 billion euros ($55 billion) of additional spending.

Here we highlight a few Germany ETFs that could be good buys in the coming days like iShares MSCI Germany ETF EWG, First Trust Germany AlphaDEX Fund FGM and iShares MSCI Germany Small-Cap ETF EWGS.

Trump’s Huawei Reprieve

President Trump has for the second time since May postponed the order to ban U.S. firms from providing supplies to the Chinese technology giant, Huawei. The “temporary general license” will be stretched for Huawei by 90 days and renew an agreement that will lapse on Aug 19. Notably, on May 15, Trump signed an executive order  to declare national emergency. Post the order, the U.S. Department of Commerce announced the addition of Huawei Technologies and its affiliates to the Bureau of Industry and Security Entity List. The news cheered investors as is evident from the 1.6% rise in the S&P 500 technology index along with 1.9% increase in the PHLX Semiconductor index.

Meanwhile, the Trump administration is considering a temporary cut in payroll taxes which in turn is expected to help the U.S. economy.

Against this backdrop, let’s take a look at a few of the semiconductor ETFs that can gain from the move like the iShares PHLX Semiconductor ETF SOXX, VanEck Vectors Semiconductor ETF SMH, Direxion Daily Semiconductors Bull 3x Shares SOXL and the ProShares Ultra Semiconductors USD. Some technology ETFs like Select Sector SPDR Technology ETF XLK, iShares Dow Jones US Technology ETF IYW, Vanguard Information Technology ETF VGT and MSCI Information Technology Index ETF FTEC can also be considered.

Conclusion

The measures announced by certain economies have bolstered confidence in investors and taken care of recessionary fears to some extent. However, some analysts believe that the speed at which ‘attacks and retaliations’ are taking place followed by the decision reversals in the trade-war game, it is increasing the ambiguity and uncertainty in global markets. Such periods of high volatility and uncertainty keep investors on edge while making it difficult for business houses to plan out a strong and concrete business strategy and capital expenditures.

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iShares MSCI Germany ETF (EWG): ETF Research Reports
 
Invesco Golden Dragon China ETF (PGJ): ETF Research Reports
 
Direxion Daily Semiconductor Bull 3X Shares (SOXL): ETF Research Reports
 
Technology Select Sector SPDR Fund (XLK): ETF Research Reports
 
Fidelity MSCI Information Technology Index ETF (FTEC): ETF Research Reports
 
iShares U.S. Technology ETF (IYW): ETF Research Reports
 
VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports
 
iShares PHLX Semiconductor ETF (SOXX): ETF Research Reports
 
iShares MSCI Germany Small-Cap ETF (EWGS): ETF Research Reports
 
iShares MSCI China ETF (MCHI): ETF Research Reports
 
Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR): ETF Research Reports
 
Vanguard Information Technology ETF (VGT): ETF Research Reports
 
iShares China Large-Cap ETF (FXI): ETF Research Reports
 
KraneShares CSI China Internet ETF (KWEB): ETF Research Reports
 
Ford Motor Company (F) : Free Stock Analysis Report
 
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