Trade Spat Creates Opportunity in for Hot China Tech ETF | ETF Trends

Heightening trade tensions between the U.S. and China, the world’s two largest economies, are being blamed for Monday’s slump in equity markets. Previously high-flying, cyclical sectors, including technology, were stung on Monday as investors worried that a series of tweets from President Trump could hamper trade talks with China.

The Global X MSCI China Information Technology ETF (CHIK) closed down 5.1% at end of trading Monday. CHIK, which debuted last December, tries to reflect the performance of the large- and mid-capitalization segments of the MSCI China Index that are classified in the Information Technology Sector as per the Global Industry Classification System.

“Chinese tech and telecom stocks were the hardest hit Monday as two tweets from U.S. President Donald Trump soured the outlook on trade talks and sent global markets plunging,” reports Bloomberg.

While Monday proved forgettable for CHIK, the ETF is still up more than 35% year-to-date, underscoring the strength in Chinese technology stocks to this point in 2019.

Tech And Trade

Ongoing trade negotiations between the U.S. and China have revolved around a wide range of issues, such as forced technology transfer as both are working feverishly to bring the trade war to an end. U.S. President Donald Trump has already imposed tariffs to the tune of $250 billion of Chinese imports in 2018.

In particular, the tariffs were meant to force China’s hand in changing its business practices, particularly when it comes to issues, such as intellectual property–all as a means to get China to open up its economy to more foreign investors.

“China’s foreign ministry said that officials were still planning to travel to the U.S. for the next round of talks but was unable to confirm when, amid signs that a delay is now being considered,” according to Bloomberg. “The response came after Trump said in tweets that progress on trade talks was too slow and threatened to slap steeper tariffs on Chinese goods.”

CHIK holds 42 stocks, over 34% of which are electronics components makers. Over 36% of CHIK’s combined weight is allocated to hardware and software companies.

“MSCI China’s tech stocks gauge surged 34 percent this year through last week, the second-best performer, helped by earlier optimism over trade talks. The sector has become a trade war proxy as giants from ZTE Corp. to Huawei Technologies Co. found themselves at the center of an escalating technology rivalry between China and the U.S.,” according to Bloomberg.

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