When it comes to traders looking leveraged exchange-traded fund (ETF) opportunities, the semiconductor sector is one in which China will have a profound impact. As such, the U.S.-China trade war will continue to be closely watched as developments unfold.
“It is really important to look at where China is in the overall value chain,” said Jimmy Goodrich, vice-president of global policy at the Semiconductor Industry Association, a US trade group representing some of the biggest names in the industry from Intel to Broadcom. “China is an integral part of a global semiconductor value chain in that it is the single, largest end-market for chip sales.”
It is really important to look at where China is in the overall value chain,” he added. “China is an integral part of a global semiconductor value chain in that it is the single, largest end-market for chip sales.”
In terms of having a global footprint on the semiconductor industry, China is one of if not the biggest.
“Many of the world’s largest consumers of chips and leading electronic companies have their supply chains in China,” said Goodrich. “A big proportion of the electronics – smartphone, laptops, personal computers, televisions – are assembled in China. Because of that, China does indeed import more chips than oil.”
This footprint could get even bigger moving forward as China is pouring more research and development to the sector.
The most important thing a government can do is to facilitate trade and grow the market–something the Chinese government has been supportive of,” said Goodrich. “Another task is to spur innovation and invest in basic research. The third thing is to invest in the workforce and talent. The protection of intellectual property rights is also important because the chip industry is R&D intensive. In the US, more than 18 per cent of revenue is reinvested in R&D – that is US$40 billion annually in the chip industry. If that US$40 billion is not going to be protected, companies are not going to be confident to invest the money in the first place.”
For the semiconductor bears, this could put the Direxion Daily Semiconductor Bear 3X ETF (NYSEArca: SOXS) in play. For investors looking to play a sub sequential bounce higher in semicondcutors can take advantage of the Direxion Daily Semiconductor Bull 3X ETF (NYSEArca: SOXL). Other ETFs without the leverage include the VanEck Vectors Semiconductor ETF (NYSEArca: SMH) and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX).
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