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What'll Impact Auto ETF Ahead: China Stimulus or Trade Worry?
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The U.S. auto industry, which has been having a hard year owing to higher interest rates, rising vehicle prices and trade war tensions, turned the corner on news of China stimulus. Chinese regulators are mulling over a 50% cut in the nation's auto tax to 5%, per Bloomberg. The measure would be applicable to cars with engines not bigger than 1.6 liters.
The tax cut looks to offer support to China's auto industry as trade war tensions with the United States threatens to weaken the Chinese economy as well as demand for vehicles. Investors should note that China has the largest automobile market in the world and has been witnessing its first annual decline in more than two decades due to trade-related threats, per Bloomberg. So, China had to intervene to arrest the slowdown.
China tasted success when it resorted to a similar cut in the car-purchase tax in September 2015. If 2015 can serve as any guide, 2019 industry sales could be revised higher by about 10%, per Sanford C. Bernstein & Co., quoted on Bloomberg. This would mark “mid-single digit growth” next year compared with present expectations of a “modest decline” according to Bernstein, quoted on Bloomberg,
Trade Tensions in the Auto Industry
The U.S.-China trade tensions have been at its height this year with the Trump administration enacting 25% tariffs on $50 billion of Chinese goods, which has been retaliated by China, mainly targeting American soybeans along with other goods (read: China's Likely Retaliation to US Tariffs & Its Impact on ETFs).
Then, the United States levied more tariffs on Chinese goods worth $200 billion starting Sep 24. This will likely push up prices on goods ranging from handbags to bicycle tires, per the source. The tariffs, which started at 10%, will shoot up to 25% on Jan 1, 2019.
U.S. auto stocks Ford and General Motors Company (GM - Free Report) gained more than 3.3% and 1.4% on Oct 29. Notably, the fate of Ford Motor is highly linked with China as the automaker lost $378 million in China during the third quarter, down from $102-million profit a year earlier (read: Auto Sales Dropped in Q3: ETF & Stocks in Focus).
Not only U.S. autos, shares of Volkswagen AG, BMW AG and Daimler AG gained in Frankfurt trading. Needless to say, Chinese automakers are other major beneficiaries of this move. Against this backdrop, First Trust NASDAQ Global Auto ETF (CARZ - Free Report) should be recording some gains. The fund gained about 0.7% on Oct 29.
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What'll Impact Auto ETF Ahead: China Stimulus or Trade Worry?
The U.S. auto industry, which has been having a hard year owing to higher interest rates, rising vehicle prices and trade war tensions, turned the corner on news of China stimulus. Chinese regulators are mulling over a 50% cut in the nation's auto tax to 5%, per Bloomberg. The measure would be applicable to cars with engines not bigger than 1.6 liters.
The tax cut looks to offer support to China's auto industry as trade war tensions with the United States threatens to weaken the Chinese economy as well as demand for vehicles. Investors should note that China has the largest automobile market in the world and has been witnessing its first annual decline in more than two decades due to trade-related threats, per Bloomberg. So, China had to intervene to arrest the slowdown.
China tasted success when it resorted to a similar cut in the car-purchase tax in September 2015. If 2015 can serve as any guide, 2019 industry sales could be revised higher by about 10%, per Sanford C. Bernstein & Co., quoted on Bloomberg. This would mark “mid-single digit growth” next year compared with present expectations of a “modest decline” according to Bernstein, quoted on Bloomberg,
Trade Tensions in the Auto Industry
The U.S.-China trade tensions have been at its height this year with the Trump administration enacting 25% tariffs on $50 billion of Chinese goods, which has been retaliated by China, mainly targeting American soybeans along with other goods (read: China's Likely Retaliation to US Tariffs & Its Impact on ETFs).
Then, the United States levied more tariffs on Chinese goods worth $200 billion starting Sep 24. This will likely push up prices on goods ranging from handbags to bicycle tires, per the source. The tariffs, which started at 10%, will shoot up to 25% on Jan 1, 2019.
There are fresh reports that President Donald Trump is preparing more tariffs on imports from China worth $257 billion if talks with China President Xi Jinping see no success.
Now, 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 - Free Report) was put in a tight spot (read: US-Sino Trade War Escalates: Most Vulnerable Sector ETFs). The nagging trade tensions have compelled Volkswagen, Ford Motor Company (F - Free Report) and Renault SA to lower their outlooks, as sales in China were in freefall for four months in a row, per Bloomberg (read: Tit-For-Tat Tariffs Hurting U.S. Automakers: ETF in Focus).
Inside the Surge in Auto Shares
U.S. auto stocks Ford and General Motors Company (GM - Free Report) gained more than 3.3% and 1.4% on Oct 29. Notably, the fate of Ford Motor is highly linked with China as the automaker lost $378 million in China during the third quarter, down from $102-million profit a year earlier (read: Auto Sales Dropped in Q3: ETF & Stocks in Focus).
Not only U.S. autos, shares of Volkswagen AG, BMW AG and Daimler AG gained in Frankfurt trading. Needless to say, Chinese automakers are other major beneficiaries of this move. Against this backdrop, First Trust NASDAQ Global Auto ETF (CARZ - Free Report) should be recording some gains. The fund gained about 0.7% on Oct 29.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>