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Sector ETFs & Stocks to Rally on US-Sino Trade Hopes

Sanghamitra Saha

The year 2018 has been all about Trump’s protectionist agenda toward trade, with China being at the center of the clash. However, the countries have been making efforts to resolve the trade dispute this year, though nothing concrete has come up yet. Currently, the countries are in the midst of a 90-day trade truce, which is due to end on Mar 1 (read: U.S.-China Trade Talks Begin: 5 Safe ETFs to Follow).

Trump had previously warned about raising the existing 10% tariff on $200 billion of imported Chinese goods to 25% in January 2019. However, as the latest development of this negotiation, U.S. President Donald Trump said he might extend the deadline for new tariffs on China, if talks make progress.

Against this backdrop, we would like to note some sector ETFs that could stay strong if there are solid hints of a trade truce.

Semiconductor

Per Morgan Stanley equity strategists, “semiconductor and semiconductor equipment companies have the highest revenue exposure to China at 52%” and are thus exposed to maximum risks on rising trade tensions. This clearly explains why the mood can be lifted in the semiconductor space on a short-term or long-term trade truce. So, VanEck Vectors Semiconductor ETF SMH is under the spotlight.      

Chipmaker Qualcomm QCOM has 65% revenue exposure to China, per Goldman Sachs. The stock has a Zacks Rank #3 (Hold) and comes from a top-ranked Zacks Industry (top 17%) and a top-ranked Zacks sector (top 31%), at the time of writing.

Technology

Tech companies that have extensive trade relations with China would be at high risk of falling prey to the trade war. In fact, Goldman Sachs has compiled a list of companies with considerable revenue exposure to China. These companies’ revenues are 14% exposed to China, per a CNBC article.

Apple AAPL, which has about 17% exposure to China, saw its Chinese smartphone shipments decline an estimated 20% in Q4 of 2018, explaining the extent of the iPhone maker’s loss of market share in the world’s largest mobile device field against local rivals like Huawei Technologies. Apple-heavy ETF iShares US Technology ETF IYW should thus gain from any improvement in trade relations.

Casino

U.S. casino companies like Wynn Resorts WYNN, Las Vegas Sands LVS and MGM Resorts International MGM have a respective exposure of about 70%, 43% and 33% to China. Along with these stocks, casino gaming ETF VanEck Vectors Gaming ETF BJK should thus benefit.

Auto

Both steel and aluminum are vital for the production of cars and trucks sold in America. So, import tariffs on those metals pushed up the sale prices of those vehicles considerably. As part of trade tensions, the Trump administration also initiated a national security investigation into auto imports.

U.S. auto companies earn about 12% revenues from China. With Beijing slamming tariffs on U.S. auto imports, First Trust NASDAQ Global Auto Index Fund (CARZ) has been under pressure. So, this fund will benefit from tariff relaxation (read: Mixed Earnings & Trade Worries Weigh on Auto ETF).

As far as stocks are concerned, Tesla Inc. TSLA has an exposure of about 15% to China and is thus poised to benefit. The stock has a Zacks Rank #3 (Hold). It comes from a top-ranked Zacks Industry (top 31%).

Aerospace

China’s list of levies includes aircraft. Notably, China is a key market for Boeing Co BA where it serves as the largest exporter to America. Thanks to trade tensions, China was feared to take harsh actions against such American companies.

In any case, Boeing has a Zacks Rank #1 and comes from a top-ranked Zacks sector (top 31%). So, aerospace ETFs like iShares U.S. Aerospace & Defense ETF ITA can heave a sigh of relief for a while (read: Top-Ranked Sector ETFs & Stocks to Buy for 2019).

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MGM Resorts International (MGM) : Free Stock Analysis Report
 
Wynn Resorts, Limited (WYNN) : Free Stock Analysis Report
 
Las Vegas Sands Corp. (LVS) : Free Stock Analysis Report
 
QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
Tesla, Inc. (TSLA) : Free Stock Analysis Report
 
VanEck Vectors Semiconductor ETF (SMH): ETF Research Reports
 
iShares U.S. Technology ETF (IYW): ETF Research Reports
 
VanEck Vectors Gaming ETF (BJK): ETF Research Reports
 
First Trust NASDAQ Global Auto Index Fund (CARZ): ETF Research Reports
 
iShares U.S. Aerospace & Defense ETF (ITA): ETF Research Reports
 
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