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Grab These Safe Haven ETFs Amid Intensifying Trade Spat

Sweta Jaiswal, FRM

Startling investors around the globe, President Trump announced a 10% of tariff on the remaining $300 billion of Chinese imports which cover almost all exports from China to the United States. The new tariff will be effective starting Sep 1. However, amid a slowing global economy and shaky financial markets, the news was not received well. In response, major U.S. averages declined about 1% in the session. Oil prices also plunged 7%, with Brent crude recording the steepest daily percentage decline since February 2016. 

Trump broke the news through a tweet at a time when investors were closely watching for development in the truce talks just carried out in Shanghai (read: US-China Truce Talks Begin: ETFs to Shine).

The Backdrop

In this year-and-a-half long trade tussle, Trump dealt a fresh blow in May 2019. He had lifted tariff to 25% from 10% on Chinese goods worth $200 billion effective May 10 midnight, and threatened to levy another 25% tariff on an additional $325 billion of Chinese goods. In retaliation, China imposed as much as 25% tariff on U.S. imports worth $60 billion, effective Jun 1. Additionally, Trump banned Chinese firm Huawei Technologies and 26 of its affiliates from doing business with American companies.

What Triggered the Tariff Hike?

Trump seemed to be disappointed with the pace at which Chinese President Xi Jinping was moving with his part of obligations in the trade deal. In this regard, the American President said, “I think President Xi ... wants to make a deal, but frankly, he’s not going fast enough.”

Lack of agricultural purchases by China is being viewed as the key reason behind the tariff hike. Chinese state media Xinhua denied the allegations stating that China made adequate purchases of U.S. soybeans along with cotton, pork and sorghum. Trump also claimed that China could not meet its commitment to effectively control the sales of the synthetic opioid fentanyl to the United States.

Furthermore, Trump threatened to raise new tariffs above 25% if a trade deal is not signed soon between the economies. The move was condemned by the U.S.-China Business Council which stated that the latest tariff hike “will drive the Chinese from the negotiating table, reducing hope raised by a second round of talks that ended this week in Shanghai.”

What to Expect?

Investors are waiting to see how China will react to the tariff hike. It is being speculated that China may either ban the exports of rare metals or raise tariffs on U.S. imports. It is also preparing its own “unreliable entities” list that might target some big U.S. corporate houses operating in China. In this regard, an ING economist Iris Pang commented that “we believe China’s strategy in this trade war escalation will be to slow down the pace of negotiation and tit-for-tat retaliation. This could lengthen the process of retaliation until the upcoming U.S. presidential election.”

Safe Haven ETFs to Ride Out the Trade Volatility

Treasury Bonds 

 iShares 20+ Year Treasury Bond ETF TLT)

Heightened global uncertainty brings this safe asset into the limelight. Fed rate cuts this year and geopolitical concerns may drive treasury valuation. Apart from TLT, investors can consider 25+ Year Zero Coupon U.S. Treasury Index Fund ZROZ and Vanguard Extended Duration Treasury ETF EDV (read: Top ETF Events of 1H Worth Watching in 2H).

Gold

SPDR Gold Trust ETF GLD)

Gold is often viewed as a safe-haven asset offering protection against financial risks and may perform well on heightened market volatility (read: NYSE Greets Huge Gold Coin to Showcase Perth Mint ETF).

GLD added about 1.7% in the past five days. Apart from GLD, investors can consider iShares Gold Trust IAU, another popular choice in this space that has returned about 2.2% in the past month.

Yen
 
CurrencyShares Japanese Yen ETF FXY)

The Japanese currency yen is often considered a classic safe-haven asset that has gained some strength lately. Investors can target this currency via FXY, which measures the value of the yen against the price of the greenback. In fact, the fund has advanced about 1.2% in the past five days (see: all the Currency ETFs here) (read: Beat Renewed Trade Tensions With These ETFs).

Utilities

Utilities Select Sector SPDR Fund XLU)

This sector performs great in a low-rate environment and serves better if investing sentiments are edgy. The fund XLU yields 3.1% annually (read: Fed Cuts Rate: Sector ETFs & Stocks Set to Soar).

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iShares Gold Trust (IAU): ETF Research Reports
 
iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
 
Utilities Select Sector SPDR Fund (XLU): ETF Research Reports
 
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ): ETF Research Reports
 
SPDR Gold Shares (GLD): ETF Research Reports
 
Vanguard Extended Duration Treasury ETF (EDV): ETF Research Reports
 
Invesco CurrencyShares Japanese Yen Trust (FXY): ETF Research Reports
 
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