US-China Trade Tensions Ease: ETFs To Benefit

The trade dispute between China and the United States seems to be nearing a resolution after two months. U.S. President Trump’s recent vows to help Chinese telecom company ZTE Corp (HK:0763) to "get back into business, fast" gave cues of easing trade tensions.

In mid-April, the U.S. Commerce Department’s Bureau of Industry and Security barred American companies from selling to ZTE for seven years on grounds that the company was involved in “exports of telecoms equipment to Iran and North Korea” (read: Short-Term Pressure Ahead for China Tech ETFs?).

The world has seen a series of retaliation in import tariffs by the countries in the last two months. Reinforcing his protectionist agenda, Trump sought to levy new tariffs worth up to $60 billion on China. Mainly Chinese apparel, technology and telecom goods were subjected to this tariff.

In retaliation, China announced a tit-for-tat tariff of more than $50 billion to match the figure proposed by the United States. In early April, President Trump announced that he is giving thought to an incremental $100 billion in tariffs on Beijing.

The two parties have not enacted the tariffs yet and now President Trump has indicated that the United States is “working well with China on trade matters” (read: Trade Tensions or Not, Stay Safe with These ETFs).

Global Stocks Rally

If a tariff war happened, it would derail the global growth momentum. Thus, signs of abating tensions between the duo led world equities gaining. The S&P 500 recorded the “biggest weekly gains in two months,” per Financial Times.

Weakening of the greenback on subdued U.S. inflation data also supported the rally in equities. PowerShares DB US Dollar Bullish ETF (NYSE:UUP) UUP was down 0.7% last week whileSPDR S&P 500 ETF (AX:SPY) gained 2.2% in the past week (as of May 11, 2018) (read: 3 Sector ETF & Stocks to Play April Inflation Data).

Against this backdrop, we highlight a few ETFs that are likely to gain on fading trade disputes between the United States and China.

iShares MSCI Hong Kong ETF EWH

Hong Kong shares specially surged after Trump’s ZTE-related comment. The news boosted Chinese tech-related shares in Hong Kong like Tencent and computer maker Lenovo. The fund gained about 1.1% on May 11.

iShares China Large-Cap ETF (TE:FXI)

Overall, China market should profit from this situation, putting FXI in focus. It added 0.3% on May 11.

ACWI iShares MSCI ETF ACWI

The global growth momentum is likely to be restored in absence of trade dispute, which makes a look at this all-world ETF necessary.

PowerShares BLDRS Asia 50 ADR Index Fund ADRA

A lower dollar and no harsh rhetoric on trade by Trump pushed Asian shares to near a one-month high. China takes the fund’s 35.7% share while Japan (33.1%), Australia (8.9%) and Taiwan (8.3%) occupy the next three spots.

Principal Sustainable Momentum Index ETF PMOM

The prevailing domestic and global economic conditions should prolong a stock market rally. So, investors can tap this momentum ETF which tracks equity securities, “including growth and value stocks, within the Nasdaq US Large Mid Cap Index that exhibit sustainable price momentum, based on historical stock prices over multiple periods and taking multiple market environments into consideration.”

Legg Clearbridge Large Cap Growth ETF LRGE

A backtracking dollar and a stable trade environment is a positive for large-cap growth stocks. This capitalization normally has a huge exposure to foreign economies. So, investors can target LRGE.

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