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Least-Hurt Tech ETFs on Renewed China Tensions

Sanghamitra Saha

The U.S.-China trade tensions as well as worries in the tech space are heightening again. The Trump administration blacklisted eight more Chinese technology giants on Oct 7, accusing the firms of being involved in human rights violations against Muslim minorities in the country’s far-western region of Xinjiang.

The companies include two video surveillance companies -- Hangzhou Hikvision Digital Technology Co. and Zhejiang Dahua Technology Co. – that almost control about a third of the global market for video surveillance and have cameras globally, per Bloomberg. Among other affected companies, there were “SenseTime Group Ltd. -- the world’s most valuable artificial intelligence startup -- and fellow AI giant Megvii Technology Ltd., which is said to be aiming to raise up to $1 billion in a Hong Kong initial public offering.”

This is the first time the Trump administration has cited human rights as a reason for blacklisting Chinese companies. Prior to this, safeguarding of national security was cited as the reason for blacklisting Huawei Technologies Co..

Though entities on the list are barred from doing business with American companies due to the non-grant of a U.S. government license, some have continued to maintain relationships with barred companies through international subsidiaries, per Bloomberg.

Tech Stocks Hit Hard

Tech companies, specifically semiconductors and tech hardware and equipment, are exposed the most to this trade war. This is because the rising tariffs will make manufacturing of American tech giant products costlier. This, in turn, will likely compel hardware manufacturers to hike prices at home, while duties on the finished goods exporting to China could also make the products expensive for buyers in that country, per techcrunch.com.

Going by the Morgan Stanley equity strategists, “semiconductor and semiconductor equipment companies have the highest revenue exposure to China at 52%” and are thus prone to maximum risks due to the heightening trade tensions. The Tech Hardware & Equipment companies have about 14% exposure to China. 

As a result, the latest tech turmoil comes as a blow to the semiconductor market as well. Video-chip maker Ambarella AMBA dropped about 9.5% on Oct 8. Other chip stocks like NVIDIA Corp NVDA (off 3.9% on Oct 8) and Advanced Micro Devices Inc. AMD (down 2.4%) also depreciated on Wednesday.

Semiconductor ETFs like VanEck Vectors Semiconductor ETF SMH and iShares PHLX Semiconductor ETF SOXX shed about 2.6% and 3.1%, respectively on Oct 8. The largest tech fund Technology Select Sector SPDR Fund XLK retreated more than 1.8% on Oct 9. Nonetheless, some tech ETFs did not lose as massively as the semiconductor funds did.

Below we highlight a few tech ETFs that survived the latest U.S.-China trade turmoil, to a large extent, on Oct 8 and lost considerably lesser than big tech and chip ETFs (see all technology ETFs here).

Tortoise Digital Payments Infrastructure Fund TPAY – Down 0.2%

Innovation Shares NextGen Protocol ETF KOIN – Down 0.7%

BlueStar Israel Technology ETF ITEQ – Down 0.9%

First Trust Nasdaq Artificial Intelligence and Robotics ETF ROBT – Down 1.7%

iShares Global Tech ETF IXN – Down 1.7%

iShares Expanded Tech Sector ETF IGM – Down 1.8%

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Advanced Micro Devices, Inc. (AMD) : Free Stock Analysis Report
 
Ambarella, Inc. (AMBA) : Free Stock Analysis Report
 
VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports
 
iShares PHLX Semiconductor ETF (SOXX): ETF Research Reports
 
Technology Select Sector SPDR Fund (XLK): ETF Research Reports
 
BlueStar Israel Technology ETF (ITEQ): ETF Research Reports
 
iShares Global Tech ETF (IXN): ETF Research Reports
 
iShares Expanded Tech Sector ETF (IGM): ETF Research Reports
 
NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
First Trust NASDAQ Artificial Intelligence and Robotics ETF (ROBT): ETF Research Reports
 
Innovation Shares NextGen Protocol ETF (KOIN): ETF Research Reports
 
Tortoise Digital Payments Infrastructure Fund (TPAY): ETF Research Reports
 
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