Tensions between China and the USA are already at an all-time high and increased even further after U.S. officials detected a Chinese surveillance balloon and finally shot it down over the US coasts of the Carolinas. The incident has already led to the cancellation of Secretary of State Blinken’s diplomatic visit to China. There are no signs of the US or China getting out of their current trade war. Both countries have already increased their military activities in the Taiwan Strait recently.
So, how can a stock investor prepare for such a situation?
Here are the 3 industries to focus on when relations do not get better or even deteriat further:
1. Cybersecurity
Check out the First Trust Nasdaq Cybersecurity ETF (Nasdaq: CIBR), which gives you exposure to 36 different cybersecurity companies or if you prefer to concentrate on 1 or 2 key players in the industry look at CrowdStrike Holdings (Nasdaq: CRWD) and Palo Alto Networks (Nasdaq: PANW) are two of the key players.
2. Defence
As we saw when Russia invaded Ukraine, the defence sector becomes one of the hottest sectors when China intends to take back Taiwan. But even if we do not come close to war the US will still prepare for the worst. If you want to get exposure across the industry, check out these 2 sector-based ETFs: the iShares U.S. Aerospace & Defense ETF (CBOE: ITA) and the Direxion Daily Aerospace & Defense Bull 3X Shares (NYSE: DFEN). For individual stocks look at Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT) and Raytheon Technologies (NYSE: RTX).
3. Mining
We could also see a massive disruption in the global mining industry. Specifically, mines involved with rare earth minerals. These rare earth minerals are extremely important and needed for new technologies and military equipment. China mines about 2/3 of the world’s rare earth materials, so a conflict with China would leave the U.S.’s access to rare earth materials highly vulnerable.
If you’re looking for an ETF to give you exposure to many companies involved in producing, refining and recycling rare earth and strategic metals and minerals, the VanEck Rare Earth/Strategic Metals ETF (NYSE: REMX) gives exposure to 25 companies.
For individual stocks look at U.S.-based mining companies such as MP Materials (NYSE: MP), Lithium Americas (NYSE: LAC) and Piedmont Lithium (Nasdaq: PLL).
Sven Franssen