President Donald Trump announced a delay in the increase of tariffs on about $200 billion worth of Chinese goods, citing “substantial progress” in trade talks with Beijing. With this, the year-long trade dispute between the world’s biggest economies seems to be reaching a conclusion.
The countries have been making concerted efforts to resolve the dispute this year. Currently, the countries are in the midst of a 90-day trade truce. But now, Trump has deferred his tariff increase plan till after Mar 1. Obviously, the markets reacted positively to the latest stance adopted by Trump.
How Will a Concrete Deal Look?
It means the United States will eliminate extra tariffs imposed in 2018 and commit no further tariff hikes. Meanwhile, “China would have to buy more products from the United States,to execute intellectual property protection, to grant full access to Chinese markets, and to establish a stable currency exchange rate.”
If that happens, the S&P 500 companies are expected to see a 1% uptick in their earnings per share and a 5% to 10% rally in their shares, according to Bank of America Merrill Lynch’s Savita Subramanian, quoted on barrons.com.
Though much of the good news has been priced in, following are the ETF areas that are to heave a sigh of relief if the U.S.-China trade deal is cut in the near term, the chance of which is pretty high.
Chinese stocks recorded their largest one-day gains in more than three years on Feb 25 following the news. China A iShares MSCI ETF CNYA (up 6.9%), CSOP FTSE China A50 ETF AFTY (up 6.8%) and China ETF Vaneck PEK (6.5%) are some of the biggest winners on Feb 25.
Dow Jones & Industrials
Since the trade truce would leave a significant positive impact on the industrial and manufacturing sector, such stocks should rally on a prospective trade deal. SPDR Dow Jones Industrial Average ETF (DIA - Free Report) and Industrial Select Sector SPDR ETF (XLI - Free Report) should thus gain ahead.
Global Markets (Mainly Emerging Asia)
U.S.-China trade spat was a bother for almost the entire world. The IMF has also cautioned that a full-scale trade war could impede global growth. All-world ETF iShares MSCI ACWI ETF ACWI was up 0.3% on Feb 25 while iShares MSCI Emerging Markets ETF EEM jumped 1.1%.
Semiconductors & Technology
Per Morgan Stanley equity strategists, “semiconductor companies have the highest revenue exposure to China at 52%” and are thus exposed to maximum risks on rising trade tensions. Tech companies also have extensive trade relations with China.
Apple (AAPL - Free Report) , which has about 17% exposure to China, saw its Chinese smartphone shipments decline an estimated 20% in Q4 of 2018, explaining the extent of the iPhone maker’s market share loss in the world’s largest mobile device field against local rivals like Huawei Technologies. So, one should see a rally in First Trust Nasdaq Semiconductor ETF (FTXL - Free Report) (up 1.1%) and iShares US Technology ETF (IYW - Free Report) (up 0.6%), if a trade truce matures.
Metal & Miners
China is one of the biggest consumers of materials as well as metals. As a result, this segment should perk up on a trade deal. No barriers in trade mean more activity in China, which should translate into higher demand for metals and materials. Global X Copper Miners ETF (COPX - Free Report) was up 1.2% (read: Why Materials & Mining ETFs Are Riding Higher).
Auto & Lithium
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) has a reason to worry. So, this fund will benefit from tariff relaxation. CARZ was up 1.5% on Feb 25 (read: Mixed Earnings & Trade Worries Weigh on Auto ETF).
Moreover, electric cars have their biggest market in China due to the country’s drive for a cleaner economy. A trade truce should thus drive demand for electric vehicles. Moreover, electric carmakers are the key users of lithium. Overall, the move will benefit Global X Autonomous & Electric Vehicles ETF DRIV) (up 1.3%) and Global X Lithium & Battery Tech ETF LIT (read: Lithium ETF at One-Month High: Here's Why).
Agricultural products like yellow and black soybean faced a retaliatory tariff from China. Notably, China purchases about half of U.S. soybean. So, trade hopes should favor Teucrium Soybean ETF SOYB (read: What's Behind the Rise in Soybean ETF?).
A pause in tariff-related proceedings should give a boost to Asian shipping stocks, per MarketWatch, bringing Claymore/Delta Global Shipping (SEA) (up 1.5%on Feb 25) into focus.
U.S. casino companies like Wynn Resorts (WYNN - Free Report) , Las Vegas Sands (LVS - Free Report) and MGM Resorts International (MGM - Free Report) have considerable exposure to China. The former two have respective revenue exposure of about 69% and 53% to China. Along with these stocks, casino gaming ETF VanEck Vectors Gaming ETF (BJK) should benefit.
China’s list of levies includes aircraft. Notably, China is a key market for Boeing Co (BA - Free Report) where it serves as the largest exporter to America. Thanks to trade tensions, China was feared to take harsh actions against such American companies. If a deal is cut, Boeing-heavy fund like iShares U.S. Aerospace & Defense ETF (ITA - Free Report) can heave a sigh of relief for a while
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