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ETF Winners as 'Phase 1' Deal Eases Trade Tensions

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Investors breathed a sigh of relief as the two largest economies reached a preliminary agreement after Trump’s meeting with Chinese Vice Premier Liu He on Oct 11. The documentation of the agreement is expected to be completed in three to five weeks. According to Trump, the countries have reached an agreement on intellectual property, financial services and impressive agricultural purchases. Moreover, the United States has decided to postpone the planned tariff increase of 5% on $250 billion of Chinese goods to Oct 15 (read: Momentum ETFs in Focus on Trade Deal Optimism).

‘Phase 1’ Deal in Details

It is being believed that the preliminary agreement tackles the softer issues between the United States and China. The deal will require Beijing to purchase American farm products valuing around $40 billion to $50 billion annually. The partial accord will also fortify China’s protection for American intellectual property and grant increased access to Chinese market. Mr. Lighthizer informed that the deal necessitates Beijing’s implementation of certain structural changes in screening methodology for imported food and granting approvals to new genetically modified products. He said that the changes will make it easier for increased amounts of American farm products to be exported to China (read: Four Solid Reasons to Buy Small-Cap ETFs Now)..

On the currency front as well, the talks have been encouraging. In exchange for United States considering eliminating China’s name on the currency manipulators list, Beijing has agreed to increase transparency in its currency policy.

Looking Forward

Analysts are worried about both the sides reaching a consensual decision on more tricky issues like Chinese government providing subsidies to its industries and their role in the economy along with Beijing’s restrictions on data transfers across its borders. Moreover, issues like Huawei ban and Dec 15 tariff hikes are yet to be discussed.  Goldman Sachs sees a 60% probability of a 15% tariff hike in early 2020 instead of on Dec 15. Meanwhile, JP Morgan views the recent development as positive but, expected by the market. Notably, Trump is scheduled to meet President Xi in November to attend the summit of the Asia Pacific Economic Cooperation countries in Chile (read: Chip ETFs in Focus as Trump Blacklists More Chinese Tech Firms)..

ETF Winners

US Agricultural/Livestock ETFs

The U.S. agricultural sector has seen the worst due to the trade war. However, the latest developments might bring some relief to the sector. In fact, the U.S. Department of Agriculture recently announced exporting around 142,172 tons of U.S. pork to Beijing in the week ended Oct 3. This was the highest weekly sale to the Chinese market on record. Thus, investors can keep an eye on ETFs like  Invesco DB Agriculture Fund (DBA - Free Report) , Teucrium Wheat Fund (WEAT - Free Report) , ELEMENTS Linked to theRogers International Commodity Index - Agriculture Total Return RJAiPath Series B Bloomberg Grains Subindex Total Return ETN (JJG - Free Report) and iPath Series B Bloomberg Livestock Subindex Total Return ETN COW (see: all the Agricultural ETFs here).

Semiconductor ETFs

President of the Semiconductor Industry Association, John Neuffer, regards the deal as “welcome news” for the industry. Let’s take a look at some of the semiconductor ETFs that can gain from the cooling down of trade tensions. iShares PHLX Semiconductor ETF SOXX and VanEck Vectors Semiconductor ETF (SMH - Free Report) can be given a thought. Investors can also look at leveraged ETFs like Direxion Daily Semiconductors Bull 3x Shares SOXL and ProShares Ultra Semiconductors USD.

Growth ETFs

Growth stocks are high in quality and are likely to witness revenue and earnings growth at a faster rate than the industry average. As such, growth funds tend to outperform during an uptrend. While there are plenty of options in the growth ETF world, we have highlighted five funds that offer broad-based exposure to the U.S. stock market like Vanguard Growth ETF (VUG - Free Report) , Schwab U.S. Large-Cap Growth ETF (SCHG - Free Report) , iShares Core S&P U.S. Growth ETF IUSGSPDR S&P 500 Growth ETF (SPYG - Free Report)  and Vanguard Mega Cap Growth ETF (MGK - Free Report) .

China ETFs

The deal can be seen as the beginning of cordial ties between China and the United States. In such a scenario, investors can keep a tab on a few China ETFs like iShares China Large-Cap ETF (FXI - Free Report) , iShares MSCI China ETF (MCHI - Free Report) , Xtrackers Harvest CSI 300 China A-Shares ETF (ASHR - Free Report) and Invesco Golden Dragon China ETF (PGJ - Free Report) .

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