Keep an Eye on These ETF Areas as US & China Plan Trade Meet

Trade tensions between the United States and China have hit a fever pitch. On Aug 8, China announced 25% tariffs on U.S. imports worth another $16 billion in retaliation to the taxes to be imposed on an equal amount of imports by U.S. authorities starting Aug 23. The targeted commodities include crude oil, diesel, cars and coal.

Moreover, the Trump administration was considering a hike in tariffs from 10% to 25% on $200 billion worth of additional Chinese goods against which a China reprisal is expected. Things have heated up so much that the United States and China plan to meet later this week in Washington to find some common area of agreement. This will be the first meeting of its kind since July.

While experts caution against expecting much, the ETF areas mentioned below are likely to move up/down post the meet.

Agriculture

Agricultural products like yellow and black soybean faced a retaliatory tariff. Notably, China purchases about half of the U.S. soybean and is the second-largest buyer of American cotton. News of a conciliatory summit between the United States and China has driven soybean prices of late. Teucrium Soybean ETF SOYB should gain if from a positive outcome of the meeting (read: US Farm Belt at Risk on China Tariffs: ETFs in Focus).

Semiconductor

Per Morgan Stanley equity strategists, “semiconductor and semiconductor equipment companies have the highest revenue exposure to China at 52%” and are thus exposed to maximum risks on rising trade tensions (read: Apple's iPhone Order Cut Report May Hurt These ETFs).

Chipmaker Qualcomm QCOM has 65% revenue exposure to China and Nvidia’s (NVDA) sales exposure to China is 56%, per Goldman Sachs. Apart from these, some other tech and semiconductor companies, which have sales exposure to China of 22% to 55%, include the likes of Intel INTC, Micron Technology MU and Applied Materials AMAT. This clearly explains why the semiconductor space is in the spotlight. So, it would be intriguing to follow the movement of semiconductor ETF VanEck Vectors Semiconductor ETF SMH.

Civilian Aircraft

China’s list of levies includes aircraft. Notably, China is a key market for Boeing Co BA where it serves as the largest exporter of America. Thanks to trade tensions, China could take harsh actions against such American companies. So, one should keep an eye on aerospace ETFs like iShares U.S. Aerospace & Defense ETF ITA.

Auto

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 should come under pressure.

Energy

U.S. energy companies have about 14% exposure to China. “China is America’s second-largest crude oil customer after Canada. Chinese imports of U.S. crude oil in May, for example, averaged 427,000 bpd, more than any other destination and surpassing Canada’s 289,000 bpd imports, EIA data shows,” as quoted on oilprice.com.

Quite expectedly, China’s proposed levies on U.S. oil imports put U.S. energy companies under pressure. So, on can track ETFs like United States Oil USO, SPDR S&P Oil & Gas Exploration & Production ETF XOP and VanEck Vectors Unconventional Oil & Gas ETF FRAK (read: Energy ETFs: Victims of China Tariffs).

Tech Hardware & Equipment

Tech companies that have extensive trade relations with China will also be at high risk. In fact, Goldman Sachs has compiled a list of companies with considerable revenue exposure to China. These companies have a 14% revenue exposure to China, per a CNBC article. Such concerns bring SPDR S&P Technology Hardware ETF XTH in focus as well.

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QUALCOMM Incorporated (QCOM) : Free Stock Analysis Report
 
The Boeing Company (BA) : Free Stock Analysis Report
 
US-OIL FUND LP (USO): ETF Research Reports
 
SPDR-SP O&G EXP (XOP): ETF Research Reports
 
VANECK-SEMICON (SMH): ETF Research Reports
 
ISHARS-US AEROS (ITA): ETF Research Reports
 
VANECK-UNC O&G (FRAK): ETF Research Reports
 
TEUCRM-SOYBEAN (SOYB): ETF Research Reports
 
FT-NDQ GL AUTO (CARZ): ETF Research Reports
 
SPDR-SP TEC HDW (XTH): ETF Research Reports
 
Intel Corporation (INTC) : Free Stock Analysis Report
 
Micron Technology, Inc. (MU) : Free Stock Analysis Report
 
Applied Materials, Inc. (AMAT) : Free Stock Analysis Report
 
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