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It seems the understatement of 2018 is to say that the biggest threat to the securities markets is a potential trade war.
A CNBC survey of financial executives at companies collectively valued at more than $4.5 trillion are worried; about two-thirds of the Global CFO Council expect a negative impact on their company.
And that was before this week, when China announced possible tariffs on more than 100 U.S. products that could affect $50 billion worth of outbound trade. President Trump announced late Thursday that he was considering penalties on an additional $100 billion in Chinese goods. And Chinese Commerce Ministry spokesman Gao Feng, in response, said Friday that China “is fully prepared to hit back forcefully and without hesitation.”
Even media outlets normally friendly to the White House, such as Fox News, aren’t buying administration claims that trade wars are easy to win and that there is a “pot of gold” waiting for the U.S. economy on the other side.
There’s good reason for this trepidation, too. History is rife with examples of protectionist trade policies that backfired.
Add it all up, and it’s possible the U.S. economy could slow amid the strife.
But in the meantime, if you’re an investor, how the heck do you trade this mess? There are already a few clear winners and losers worth watching.
Here are three assets to buy, and three to sell based on the latest news:
Three to buy
Buy gold: It’s reductive but true: Gold is a safe haven in times of trouble. Immediately after news of China’s retaliatory tariffs broke Wednesday, the precious metal spiked dramatically. Gold-backed ETFs such as the SPDR Gold Shares GLD, +0.41% and the iShares Gold Trust IAU, +0.35% have done pretty well.
Buy the Japanese yen: The CurrencyShares Japanese Yen ETF FXY, +0.40% has gained almost 6% this year. This is incredibly telling, seeing as the U.S. is tightening policy, but the Bank of Japan left key short-term interest rates at minus 0.1%. That’s hardly the recipe for a strong currency, but compared with other assets, the yen is still in demand.
Buy China’s tech sector: One big growth story that shouldn’t be disrupted too badly by any trade war is China’s tech industry. Companies such as Baidu BIDU, -1.81% Alibaba BABA, -2.26% and Tencent Holdings TCEHY, -1.58% are surging, based on the country’s increasingly wired population making these three stocks the Chinese equivalents of Google GOOG, -0.65% Amazon AMZN, -1.69% and Facebook FB, -0.03% respectively. Admittedly, those stocks have been caught up in the recent sell-off, but barriers to foreign competition are nothing new for China’s Big Tech stocks, and domestic growth should continue to power their long-term success regardless of trade-war talk.
Three to sell
Sell agriculture-related investments: One of the major U.S. export categories to China includes agricultural products. In fact, immediately after Wednesday’s news, there were deep declines across the board for commodities, including soybeans and corn. Most investors don’t directly invest in agricultural products, but investments like the PowerShares Agricultural ETF DBA, -0.69% have performed poorly in recent weeks, as have agribusiness plays like Monsanto MON, +0.20% which has declined since mid-March on a steady drumbeat of trade news.
Sell Boeing: With the defense industry being a favorite of the Trump administration and the veil of “national security interests” being pulled over this trade war, you may think that defense stocks are bulletproof during this market volatility. Not so fast. Boeing BA, -2.87% is particularly vulnerable to a trade war with China. Consider that in 2017, China was the second-largest foreign market for the company and worth nearly $12 billion in revenue, in large part because of its commercial passenger planes.
Sell chipmakers: As a group, semiconductor stocks are reliant on China as a source of revenue. Mega-caps like Broadcom AVGO, -1.56% and Intel INTC, -1.69% do billions in revenue in the region, and while mid-cap names like Qorvo QRVO, -0.97% may not have the same raw scale, these smaller chipmakers can generate more than half of their total sales in China. As of yet there are no specific measures that are raising red flags, but the sector’s heavy reliance on a trade partner that is taking retaliatory action doesn’t bode well.