If the more-than-a-year-long Russia-Ukraine war was not enough, other parts of the globe have also been seeing geopolitical tensions. China, which claims democratically governed Taiwan as its own territory, began military exercises from the day after Taiwan President Tsai Ing-wen returned from a fleeting visit to the United States.
Taiwan said it was keeping a watch on the movement of China’s missile forces while United States said it was also monitoring Chinese activities. Amid the chaos in East Europe, French president Emmanuel Macron has gone to Beijing in the latest attempt by a European leader to pursuade China’s Xi Jinping to take out support for Russian president Vladimir Putin.
Meanwhile, Israeli jets hit Syrian military targets on Sunday in response to rockets launched towards Israeli controlled territory overnight, Israel’s military said,
as quoted on CNBC, as violence turned rife again after cross-border exchanges of fire during the week. What’s the Threat from Geopolitical Tensions?
“The IMF said that the rise of “friendshoring” — foreign direct investment flowing more between countries that are political allies than those that are geographically close — was likely to increase the risk of economic downturns and could cut long-term global output by 2%,”
as quoted on a Financial Times article.
The World Trade Organization (WTO) said that global export volumes increased by a lower than expected 2.7% in 2022 compared with 2021 as the war in Ukraine and sanctions on Russia disrupted supply chains that were already weak from the pandemic. The WTO also forecasts that growth in exports will weaken this year to 1.7%, way below the past decade’s average expansion of 2.6%, the above-said FT article quoted.
Against this backdrop, below we highlight a few ETFs that could be intriguing bets if geopolitical tensions intensify.
ETFs in Focus SPDR Gold Shares ( GLD Quick Quote GLD - Free Report)
After wild swings, gold showed a strong rebound lately on U.S. recessionary threats as the metal is considered a safe haven. The subdued U.S. dollar and a decline in U.S. treasury bond yields bolstered the demand for the yellow metal. Additionally, the demand for inflation hedge is also driving investors toward gold.
iShares U.S. Aerospace & Defense ETF ( ITA Quick Quote ITA - Free Report)
Continued geopolitical tensions in various parts of the world should boost aerospace and defense stocks and ETFs. Notably, the United States shells out more on national defense than China, India, Russia, United Kingdom, Saudi Arabia, Germany, France, Japan, and South Korea — combined. China’s defense budget for 2023 will grow by 7.2%, marking a straight eighth consecutive year increase. India is also planning to boost defense spending by 13% with billions to be invested for new weapons (read:
4 Reasons Behind the Strength of Aerospace & Defense ETFs). Invesco DB Agriculture ETF ( DBA Quick Quote DBA - Free Report)
The increased protectionism and friend-shoring will likely give rise to global food insecurity. The crisis is emerging from the war, with famine still a possibility, per the WTO, the above-mentioned FT article revealed. No wonder, prices for soft commodities will go up. Already, prices for coffee, cocoa and sugar are rising in recent weeks.
Utilities Select Sector SPDR ETF ( XLU Quick Quote XLU - Free Report)
If a recession hits the United States, U.S. treasury yields will likely fall. Utilities stocks perform better in a low-rate environment. Nevertheless, utilities are often seen as a safe investment during recessions or periods of weak economic growth because demand for electricity, gas, and water services remains stable.