Macro: Sandcastle economics
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How to prepare for an all-out trade war
Peter Garnry
Chief Investment Strategist
Summary: Tensions between the US and China continue to rise, with investors realising that they will likely need to prepare for a bitter, drawn-out conflict. Here are the key equities and ETFs to watch for trade war exposure as Washington and Beijing prepare their next moves.
(UPDATE: Saxo has enabled CFD trading across most of the assets listed below, with the exception of EXV5:xetr. This allows investors to express a bearish view via shorting the instrument.)
The China-US trade war is growing more severe with every day that passes. Reports of US companies experiencing increasing friction in China are emerging as Beijing retaliates against Washington's latest tariffs and regulatory strikes. This morning, the BBC reported that ARM Holdings employees have been asked to halt “all active contracts” with Huawei to remain in compliance with the US ban on that firm; the Financial Times, meanwhile, stated thius morning that US companies are responding to tariffs and the current trade war trajectory by moving production out of China.
We are witnessing a massive reconfiguration of the global supply chain and most investors are not mentally prepared for the outcome. We remain significantly more negative than consensus on the trade war. Our latest analyses on the developing Cold War in tech as well as on semiconductors' centrality to the conflict aim to provide some clarity on what is a very fluid and fast-moving situation.
Assets caught in the crosshairs
The below list details the stocks and exchange-traded funds most exposed to the trade war. They track semiconductors, the automotive sector, Chinese tech, inustrials, and transportation.
These assets are likely to endure significant volatility as the trade war progresses. It is crucial, in our view, that investors are aware of the dynamics facing these assets and sectors so they can allocate accordingly in what appears to be the start of a major market disruption.
Semiconductors / technology
iShares TecDAX UCITS ETF (EXS2:xetr)
• This tracks German technology and contains some semiconductors such as Infineon Technologies
• This index can also be traded as a CFD and a future
Invesco QQQ Trust Series 1 (QQQ:xnas)
• Tracks the Nasdaq 100 Index – the leading US technology index
• Not UCITS and thus not available to European retail investors
• This index can also be traded via CFD, futures and options
iShares PHLX Semiconductor ETF (SOXX:xnas)
• Tracks the PHLX Semiconductor Sector Index
• Not UCITS and thus not available to European retail investors
• Can also be traded as CFD
Automobiles/transportation
iShares STOXX Europe 600 Automobiles & Parts ETF UCITS (EXV5:xetr)
• Tracks the STOXX Europe 600 Automobiles & Parts Index
• Can also be traded as a CFD
SPDR S&P Transportation ETF (XTN:arcx)
• Tracks the S&P Transportation Select Industry Index
• Not UCITS and thus not available to European retail investors
Chinese technology
KraneShares CSI China Internet Fund (KWEB:arcx)
• Tracks the CSI Overseas China Internet Index
• Not UCITS and thus not available to European retail investors
Chinese technology, auto, E-commerce, semiconductors (single stocks – US ADRs, HK stocks)
Single semiconductor stocks
Our analysis of the global semiconductor industry showed two custom-made indices tracking the industry. Below are the constituents of these indices (this is useful for European retail investors not able to trade US-listed ETFs).
The China-US trade war is growing more severe with every day that passes. Reports of US companies experiencing increasing friction in China are emerging as Beijing retaliates against Washington's latest tariffs and regulatory strikes. This morning, the BBC reported that ARM Holdings employees have been asked to halt “all active contracts” with Huawei to remain in compliance with the US ban on that firm; the Financial Times, meanwhile, stated thius morning that US companies are responding to tariffs and the current trade war trajectory by moving production out of China.
We are witnessing a massive reconfiguration of the global supply chain and most investors are not mentally prepared for the outcome. We remain significantly more negative than consensus on the trade war. Our latest analyses on the developing Cold War in tech as well as on semiconductors' centrality to the conflict aim to provide some clarity on what is a very fluid and fast-moving situation.
Assets caught in the crosshairs
The below list details the stocks and exchange-traded funds most exposed to the trade war. They track semiconductors, the automotive sector, Chinese tech, inustrials, and transportation.
These assets are likely to endure significant volatility as the trade war progresses. It is crucial, in our view, that investors are aware of the dynamics facing these assets and sectors so they can allocate accordingly in what appears to be the start of a major market disruption.
Semiconductors / technology
iShares TecDAX UCITS ETF (EXS2:xetr)
• This tracks German technology and contains some semiconductors such as Infineon Technologies
• This index can also be traded as a CFD and a future
Invesco QQQ Trust Series 1 (QQQ:xnas)
• Tracks the Nasdaq 100 Index – the leading US technology index
• Not UCITS and thus not available to European retail investors
• This index can also be traded via CFD, futures and options
iShares PHLX Semiconductor ETF (SOXX:xnas)
• Tracks the PHLX Semiconductor Sector Index
• Not UCITS and thus not available to European retail investors
• Can also be traded as CFD
Automobiles/transportation
iShares STOXX Europe 600 Automobiles & Parts ETF UCITS (EXV5:xetr)
• Tracks the STOXX Europe 600 Automobiles & Parts Index
• Can also be traded as a CFD
SPDR S&P Transportation ETF (XTN:arcx)
• Tracks the S&P Transportation Select Industry Index
• Not UCITS and thus not available to European retail investors
Chinese technology
KraneShares CSI China Internet Fund (KWEB:arcx)
• Tracks the CSI Overseas China Internet Index
• Not UCITS and thus not available to European retail investors
Chinese technology, auto, E-commerce, semiconductors (single stocks – US ADRs, HK stocks)
| • Alibaba | • NetEase | • Autohome | • Bilibili | • Tencent | • BYD |
| • Baidu | • iQIYI | • 58.com | • HUYA | • Meituan Dianping | • Geely Automobile |
| • JD.com | • Momo | • NIO | • Xiaomi | • Sunny Optical Technology | |
| • Lenovo Group |
Our analysis of the global semiconductor industry showed two custom-made indices tracking the industry. Below are the constituents of these indices (this is useful for European retail investors not able to trade US-listed ETFs).
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