For Huawei Bet, ETF Traders Must Look To China Funds, Not Semis

China Stock ETF Tumbles As JPMorgan Sees 'Full-Blown Trade War'


Semiconductor stocks may be getting hit following the arrest of Wanzhou Meng, Huawei Technologies’ chief financial officer. But exchange traded fund investors won’t have an easy time getting in on the action.




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None of the U.S. chip suppliers with significant exposure to the Chinese telecom giant — such as NeoPhotonics (NPTN), Lumentum Holdings (LITE) and InPhi (IPHI) — is held by the two largest funds tracking semiconductor stocks: the VanEck Vectors Semiconductor ETF (SMH) and the iShares PHLX Semiconductor ETF (SOXX). Both ETFs have roughly $1.3 billion in assets.

Those stocks plunged in early trading Thursday. NeoPhotonics, for example, which generates about 47% of its sales from Huawei, plunged 23% after B. Riley FBR downgraded it to neutral from buy, citing “Huawei uncertainty.” NeoPhotonics closed with a 16% loss.

Instead, ETF investors who want to wager on the broader implications of the arrest, such as a possible widening of the ongoing trade war between the U.S. and China, may want to look for funds tracking Chinese stocks. The largest U.S.-listed China fund, BlackRock‘s (BLK) $6 billion iShares China Large-Cap ETF (FXI), fell as much as 3.4% Thursday before paring losses to close with a 0.1% gain.

“Investors are reading the tea leaves that the arrest of the Huawei CFO means there will be a breakdown in relations between the U.S. and China, which will worsen the trade situation,” said Kristina Hooper, chief global market strategist at Invesco (IVZ). “Investors overreacted positively to news that much progress had been made on the trade front, and now are overreacting negatively to recent trade developments.”

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