Safe-Haven ETFs Rally on Global Unrest: ETFs to Snap Up
Asian markets are ruffled by global political uncertainty, economic weakness and escalating Sino-US trade war tensions. Accordingly, Hong Kong’s Hang Seng Index has lost 7% in August (as of Aug 12), Shanghai Composite Index declined 4% (as of Aug 12) andJapan’s NIKKEI 225 Index moved down 3.9% (as of Aug 9). Indices in South Korea, Singapore and Indonesia also showed a similar trend so far in the month.
The uncertainty in market conditions is increasingly adding to the appeal of safe-haven picks like gold, bonds and yen. In fact, the 10-year Treasury yields are closest to the lowest point in around three years, gold has almost reached asix-year high level and the yen has almost touched a seven-month high against the dollar of late. Accordingly, the popular gold ETF — SPDR Gold Shares GLD — has gained 7.1% in August (as of Aug 12). The iShares 20+ Year Treasury Bond ETF TLT rose 7.8% and the Invesco CurrencyShares Japanese Yen Trust FXY has increased 3.3% in the same period (read: Grab These Safe Haven ETFs Amid Intensifying Trade Spat).
Let’s take a look at the global issues that are boosting the popularity of safe-haven picks.
Hong Kong Unrest
The pro-democracy protests in Hong Kong forced officials to keep the Hong Kong airport shut on Aug 12. Intensifying the situation, China is connoting the demonstrations as “terrorism.” The protests, which are being carried out for around 10 weeks, had been sparked by a disagreement to a bill permitting extraditions to mainland China.
Argentina’s Political Scenario
The unexpected primary elections results on Aug 11, which were against the present Argentine President Mauricio Macri,led to a massive fall in peso and Argentine stocks and bonds. Going by research firm Refinitiv, Argentine currency, stocks and bonds did not witness a simultaneous weakness since its economic crisis and debt default in 2001.
Intensifying Sino-US Trade War
Startling investors around the globe, President Trump announced in early August a 10% tariff on the remaining $300 billion of Chinese imports, which cover almost all exports from China to the United States. The new tariff will be effective starting Sep 1. China has retaliated with tariffs on $110 billion of American goods to date, including agricultural products. But as a retaliatory move to the new round of tariffs, China devalued its currency to an 11-year low and stopped purchases of U.S. farm products (read: ETF Areas Under Focus on China's Yuan Devaluation).
Japan-South Korea Trade Spat
Japan is on the verge of a trade spat with South Korea. Japanese exporters are now required to apply for licenses for certain individual shipments to South Korea of items like chemicals, used mostly for producing refrigerants, pharmaceutical intermediates, metals production, and sometimes semi-conductor preparations.In turn,the South Korean government has planned to revoke Japan’s preferred trade partner status and include it in their newly-created restrictive trade list.
Weakness in Global Economies
The U.K. economy recently disappointed in the second quarter for the first time since late 2012, with GDP declining 0.2%. Adding to the disappointment, Germany’s industrial production witnessed the steepest annual slump in nine years. Japan has seen a decline in exports for the seventh straight month in June. In fact, a slowdown in global economic growth is being observed with Trump making rampant attacks to defend his America First agenda resulting in weaker currencies, soft economic growth and slashed forecasts for several countries (read: Asian Shares Tumble on Recessionary Fears: ETFs in Focus).
ETFs to Grab
iShares 20+ Year Treasury Bond ETF TLT
Heightened global uncertainty brings this safe asset into the limelight. Fed rate cuts this year and geopolitical concerns may drive treasury valuation. Apart from TLT, investors can consider 25+ Year Zero Coupon U.S. Treasury Index Fund ZROZ and Vanguard Extended Duration Treasury ETF EDV (read: Top ETF Events of 1H Worth Watching in 2H).
SPDR Gold Trust ETF GLD
Gold is often viewed as a safe-haven asset offering protection against financial risks and may perform well on heightened market volatility (read: NYSE Greets Huge Gold Coin to Showcase Perth Mint ETF).
Apart from GLD, investors can consider iShares Gold Trust IAU, another popular choice in this space, which has returned about 7% in August so far (as of Aug 12) (read: How to Bet on Gold Surge With ETFs & Stocks).
Invesco CurrencyShares Japanese Yen Trust FXY
The Japanese currency yen is often considered a classic safe-haven asset that has gained some strength of late. Investors can target this currency via FXY, which measures the value of yen against the greenback (see: all the Currency ETFs here) (read: Beat Renewed Trade Tensions With These ETFs).
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Invesco CurrencyShares Japanese Yen Trust (FXY): ETF Research Reports
iShares 20+ Year Treasury Bond ETF (TLT): ETF Research Reports
PIMCO 25+ Year Zero Coupon U.S. Treasury Index ETF (ZROZ): ETF Research Reports
SPDR Gold Shares (GLD): ETF Research Reports
iShares Gold Trust (IAU): ETF Research Reports
Vanguard Extended Duration Treasury ETF (EDV): ETF Research Reports
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