Speculation is rife that the trade tension between the U.S. and China will increase this year. These signs have already started to build up in the space with the spate of news.
First, the latest Blomberg report states that China may slow down, or even stop, the purchase of U.S. government bonds, citing that U.S. debt has become less attractive than other assets. Since China is the biggest buyer of U.S. sovereign bonds holding $1.2 trillion of U.S. debt, the action could lead to a broad sell-off in the equity markets. However, China’s regulator called it a possibly “fake news” and denied the report.
Secondly, Chinese media criticized the recent passage of two bills by the U.S. House Foreign Affairs Committee aimed at bolstering the critical U.S.-Taiwan partnership. The Global Times, a nationalistic arm of the Communist Party media apparatus states “Beijing’s diplomatic retaliations toward Washington will come from all sides.” Since 1979, Washington has cut off diplomatic ties with the government in Taipei under the “One China” policy, which recognizes the East Asian island as part of China.
Further, the United States has blocked two Chinese high-profile deals over national security concerns. One is Ant Financial’s $1.2 billion purchase of transfer firm MoneyGram International and the other is the Huawei Technologies deal with U.S. carrier AT&T Inc. (NYSE:T) to sell its smartphones in the United States. The back-to-back Chinese investment setback in a week has threatened China-U.S. trade ties.
The move came as the Trump administration is gearing up for new trade penalties against China in the coming weeks, including potential tariffs on steel and aluminum imports and punitive actions against China arising from an investigation into Beijing’s alleged theft of intellectual property. The United Sates is also mulling to impose tariff or import duties on Chinese solar panels and washing machines manufactured in China and its neighbors. If this happens, this would lead to retaliatory measures from Beijing, indicating the beginning of a trade war with implications for the entire world trading system.
Against such a backdrop, investors could stash their cash in the following ETFs that offer stability or even profit as U.S.-China relations continues to unfold.
SPDR Gold Trust ETF (NYSEARCA:GLD)
Gold is often viewed as a store of value and hedge against market turmoil. The product tracking this bullion like GLD could be an interesting pick in the current market turbulence. The fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA.
It is the ultra-popular gold ETF with AUM of $35.3 billion and heavy volume of nearly 7 million shares a day. It charges 40 bps in fees per year from investors and has a Zacks ETF Rank #3 (Hold) with a Medium risk outlook.
iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT)
The products tracking the long end of the yield curve often provide a safe haven. TLT provides exposure to long-term Treasury bonds by tracking the ICE U.S. Treasury 20+ Year Bond Index. It is one of the most popular and liquid ETFs in the bond space with AUM of $6.9 billion and average daily volume of more than 8 million shares.
Expense ratio comes in at 0.15%. Holding 33 securities in its basket, the fund focuses on the top credit rating bonds with average maturity of 25.86 years and effective duration of 17.56 years. The fund has an unfavorable Zacks ETF Rank #4 (Sell) with a High risk outlook.
Guggenheim CurrencyShares Japanese Yen Trust (NYSEARCA:FXY)
Yen is considered a safe-haven currency in times of uncertainty. Investors could tap this via FXY, which appears a great way to play a future rise in the yen relative to the U.S. dollar. It tracks the movement of the yen relative to the U.S. dollar, net of the Trust expenses, which are expected to be paid from the interest earned on the deposited Japanese yen.
The fund charges 40 bps a year in fees and sees a good volume of roughly 99,000 shares per day. The product has accumulated $105.9 million in its asset base and has a Zacks ETF Rank #3 with a Medium risk outlook.
ProShares Short FTSE China 50 (NYSEARCA:YXI)
A fund like YXI that offers to pay the opposite of the return of a Chinese benchmark will likely make profits if the trade situation worsens. This ETF delivers the inverse return of the FTSE China 50 Index, which offers exposure to the 50 largest and most-liquid Chinese stocks listed on the Hong Kong Stock Exchange.
The fund has accumulated $4.6 million in its asset base and trades in a light volume of 2,000 shares a day on average. Expense ratio comes in at 0.95%.
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