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U.S.-China Aerial Conflict Intensifies: ETF Areas in Tight Spot

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The U.S. military shot down a suspected Chinese 'spy' balloon off the Carolina coast in early February after it crossed sensitive military areas across North America. China claimed that the overpass was an accident. China also responded that it reserved the right to “take further actions” and criticized the U.S. for “an obvious overreaction and a serious violation of international practice.”

A week after, again President Joe Biden ordered the Pentagon to shoot down an unidentified "high-altitude object" off Alaska on Friday. The car-sized object, which was unable to move, “posed a reasonable threat to the safety of civilian flight,” the White House said.

Then, Canadian prime minister Justin Trudeau announced that an unidentified object was shot down in its airspace on Saturday. If these were not enough, President Joe Biden ordered yet another unidentified object to be downed near Lake Huron, in the vicinity of the Canadian border, on Sunday afternoon, indicating the fourth such aerial invasion into North American airspace this month.

The U.S. Commerce Department already announced a new round of sanctions last Friday against six Chinese aerospace companies as those are identified as supporting China’s military’s reconnaissance balloon program. No wonder, such incidents are likely to worsen the relationship between North America and China in the coming days.

Following are the ETF areas that are at risk amid escalating tensions between the United States (as well as Canada) and China.


Chinese markets are likely to underperform in reaction to the conflict. China ETFs like iShares China Large-Cap ETF (FXI - Free Report) , China A iShares MSCI ETF (CNYA - Free Report) and CSOP FTSE China A50 ETF (AFTY) are likely to come under pressure. China’s technology sector is especially likely to suffer as more U.S. sanctions may be in the cards. KraneShares CSI China Internet ETF (KWEB) should thus be under close watch.


U.S. casino companies like Wynn Resorts (WYNN - Free Report) and Las Vegas Sands (LVS) have considerable exposure to China. Along with these stocks, the casino gaming ETF VanEck Vectors Gaming ETF (BJK - Free Report) should thus suffer.


Notably, China purchases about half of the U.S. soybean and is the second-largest buyer of American cotton. So, Teucrium Soybean ETF (SOYB - Free Report) and the broader agriculture ETF Invesco DB Agriculture (DBA - Free Report) may face risks.


U.S. chipmakers also have huge sales exposure to China. So, renewed tensions with China could bring back pain in the semiconductor space. iShares PHLX Semiconductor ETF (SOXX - Free Report) is thus in a vulnerable position.

Dow Jones & Industrials

Since the tensions may leave a significant negative impact on the industrial and manufacturing sector, such stocks may slump. U.S. aerospace giant Boeing is striving to revive its business in China but faces stiff competitive headwinds from France’s Airbus and the Commercial Aircraft Corporation of China (COMAC). Boeing has good exposure to SPDR Dow Jones Industrial Average ETF (DIA - Free Report) and aerospace ETFs like iShares U.S. Aerospace & Defense ETF (ITA - Free Report) . Hence, these ETFs may fall prey to the latest aerial conflict.



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