The Most Vulnerable ETFs In Trump’s Trade Wars

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September 19, 2018 6:06am NYSE:SMH

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From Zacks: The U.S.-China trade tensions flared up all over again with the Trump administration levying more tariffs on Chinese goods worth of $200 billion starting next week. This will likely push up prices on goods ranging from handbags to bicycle tires, per the source. The tariffs will start at 10%, beginning Sep 24, and then shoot up to 25% on Jan 1.

Beijing has threatened to hit back with an additional $60 billion in American goods if Trump goes ahead with more tariffs. And if China hits back, Trump threatened to levy further $267 billion in Chinese imports. That would take the total levy to $517 billion — meaning almost every Chinese import. Notably, Trump has already enacted 25% tariffs on $50 billion in Chinese goods, which has been retaliated by China, mainly targeting American soybeans along with other goods (read: China’s Likely Retaliation to US Tariffs & Its Impact on ETFs).

Against this backdrop, it would be intriguing to note the sector ETFs or areas that are now in a vulnerable state given the escalation of the trade war. Per an article published on CNBC, the following sectors and areas have considerable business exposure to China and are thus more susceptible to the trade war.


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 – Free Report) has 65% revenue exposure to China and Nvidia’s (NVDA – Free Report) sales exposure to China is 56%, per Goldman Sachs. Apart from these, some other tech and semiconductor companies, which have sales exposure to China in the range of 22% to 55%, include the likes of Intel (INTC – Free Report) , Micron Technology (MU – Free Report) and Applied Materials (AMAT – Free Report) . This clearly explains why the mood is somber in the semiconductor space. So, VanEck Vectors Semiconductor ETF (SMH – Free Report) may see troubles ahead (read: Trade-Sensitive Sector ETFs & Stocks to Watch on Talk Hopes).

Tech Hardware & Equipment

Tech companies that have extensive trade relations with China would be at high risk of falling prey to the trade war. In fact, Goldman Sachs has compiled a list of companies with considerable revenue exposure to China. These companies’ revenues are 14% exposed to China, per a CNBC article. SPDR S&P Technology Hardware ETF (XTH – Free Report) should thus be followed carefully.


U.S. casino companies have extensive exposure to China. While Wynn Resorts has 73% focus and MGM Resorts takes about 19% of the exposure, through its 70.1% ownership of Sands China Ltd., Las Vegas Sands owns properties in Macau. So, the fund VanEck Vectors Gaming ETF (BJK – Free Report) comes under the spotlight.

Consumer Services

As tariff tensions heat up, inflation in the U.S. economy should perk up. Along with most market watchers, we too believe that companies will try to pass on some cost escalation to consumers. Moreover, higher inflation and chances of faster Fed rate hikes would give a boost to bond yields. This, in turn, might push up consumers’ borrowing costs and hurt iShares U.S. Consumer Services ETF (IYC – Free Report) . In any case, U.S. consumer services have about 10% sales exposure to China. That is yet another risk to consumer funds.


U.S. auto companies earn about 12% revenues from China. With Beijing slamming tariffs on U.S. auto importsFirst Trust NASDAQ Global Auto Index Fund (CARZ – Free Report) would come under pressure (read: US August Auto Sales Encouraging: ETF & Stocks in Focus).


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. So, Teucrium Soybean ETF (SOYB – Free Report) and the broader agriculture ETF Invesco DB Agriculture (DBA – Free Report) may face risks and are down 13.9% and 10.9%, respectively, this year (read: US Farm Belt at Risk on China Tariffs: ETFs in Focus).

The VanEck Vectors Semiconductor ETF (SMH) was unchanged in premarket trading Wednesday. Year-to-date, SMH has gained 8.41%, versus a 9.45% rise in the benchmark S&P 500 index during the same period.

SMH currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #16 of 68 ETFs in the Technology Equities ETFs category.

This article is brought to you courtesy of Zacks Research.

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