After heightened political rhetoric, U.S. president Trump pulled out of the scheduled June meeting with North Korea’s Kim Jong Un. Strained relations between the United States and North Korea have been dominating the headlines for long. Late Tuesday, Trump commented that a planned historic meeting between the United States and North Korea may not take place if Pyongyang fails to comply with certain conditions (read: Quality ETFs in Focus on Dovish Fed).
On May 24, the White House called off the June 12 meeting due to the North Korea’s “tremendous anger and open hostility” targeted toward Washington. However, North Korea says it's still keen on resolving issues with the United States.
Against this backdrop, we would like to highlight a few ETFs that could gain or lose in the near term.
Investors should note that with geopolitical uncertainty on the rise, developed as well as emerging nations have been bumping up their defense spending. So, any negative developments in the U.S.-North Korea relationship will veer investors to defense stocks and related funds.
Though in response to the cancellation of the meeting, Kim Jong Un adopted a peacemaking tone, sensing possibilities of a warfare, defense stocks went northward. This puts SPDR S&P Aerospace & Defense ETF (XAR - Free Report) in focus. The fund added 0.7% on May 24.
Gold is often viewed as a safe-haven asset to provide hedge against financial risks and may perform well on heightened market volatility. SPDR Gold Shares (GLD - Free Report) gained about 0.9% on the cancellation of the meeting.
The Japanese currency, yen, is often considered a classic safe-haven asset. Also, slightly lower expectations of a faster Fed rate hike this year dampened the dollar to some extent and boosted the yen.
Investors can target this currency via FXY, which measures the value of yen against the greenback. On May 24, PowerShares DB US Dollar Bullish ETF (UUP - Free Report) was off 0.1% while PowerShares CurrencyShares Japanese Yen ETF (FXY - Free Report) advanced 0.8% (see: all the Currency ETFs here).
Though U.S. treasuries were out of favor a few days back due to worries over faster Fed tightening, North Korea tensions brought this safe asset in the limelight. Dimming prospects of faster-than-expected Fed rate hike and geopolitical concerns may lead treasury valuation to soar (read: Quality ETFs in Focus on Dovish Fed).
Yields on the U.S. benchmark 10-year notes slipped to 2.98% on May 24 from the month-high of 3.11%. iShares 20+ Year Treasury Bond ETF (TLT - Free Report) added about 0.8% on May 24.
Asian stocks especially were subdued on May 24 on the news. iShares MSCI All Country Asia ex Japan ETF (AAXJ - Free Report) lost 0.3% on May 24, Vanguard FTSE Pacific ETF (VPL - Free Report) was off about 0.5%, iShares MSCI South Korea Capped ETF (EWY - Free Report) lost about 1.3%, iShares MSCI Japan ETF (EWJ - Free Report) retreated about 0.6% and iShares Edge MSCI Min Vol Asia ex-Japan ETF shaded 1.1%.
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