In China, and the world for that matter, technology has been one of the few bright spots in the capital markets. With Covid-19 doing a number on economies, technological reliance has been the byproduct, but will strain relations between the U.S. and China bring out the bears for tech?
With the risk dial turned back up, investors are once again on the prowl for equities. A crucial election year is ahead in the U.S., which could mean further strained relations should current U.S. President Donald Trump achieve re-election.
Trump has maintained a hard line stance against China trade practices, and that could continue for another four-year term. Will a tech bubble ensue and result in a crisis reminiscent of the U.S. housing bubble in 2008?
“The US tech war with China is heating up, and it isn’t looking good for the tech bubble,” a South China Morning Post article said. “The technology war will depress demand for the foreseeable future and increase business costs for all participants. The tech bubble is still floating high, with tech stocks surging as central banks boosting response to the pandemic.”
“But as the impact of the tech war becomes increasingly obvious over the coming quarters and earnings reporting seasons, a chill will be thrown over stock markets,” the article added. “There might not be enough liquidity to neutralize fears over deteriorating fundamentals. When this tech bubble bursts, the popping sound could be louder than in 2008 and send more shivers through financial markets than the crisis in 2008.”
Trading the Tech Ups and Downs
Tech in the U.S. could also mirror a burst bubble, which won’t bode well for the bulls. Either way, ETF investors can use leveraged trades to take advantage of the ups and downs in the tech space.
For weakness in tech, one inverse ETF to consider is the Direxion Daily Technology Bear 3X ETF (NYSEArca: TECS). TECS seeks daily investment results, before fees and expenses, of 300% of the inverse (or opposite) of the daily performance of the Technology Select Sector Index. The index is provided by S&P Dow Jones Indices and includes domestic companies from the technology sector.
Nonetheless, for traders looking to play the bullish side of tech, they can use the Direxion Daily Technology Bull 3X ETF (NYSEArca: TECL). TECL seeks daily investment results of 300% of the daily performance of the Technology Select Sector Index, which includes domestic companies from the technology sector.
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