What the Trade War Really Means for Semiconductors

What the Trade War Really Means for Semiconductors

One thing is on every investor’s mind right now: the U.S.-China trade war.

In September 2018, President Donald Trump implemented 10% tariffs on $200 billion of Chinese imports to combat their unfair trade practices. China responded with duties of its own on $60 billion of U.S. goods.

And tensions continue to run high…

When President Trump tweeted that he intended to raise the tariffs to 25%, China fired back with tariffs on $60 billion of U.S. imports.

One industry found itself in the middle of a conflict between the world’s two largest economies: semiconductors.

In addition to raising tariffs, the U.S. also restricted American firms from selling components and technology to Huawei, the Chinese company that doubles as the largest telecom equipment maker in the world.

Trade War Troubles

Last month, the U.S. put Huawei on a blacklist. Now it needs approval from Washington, D.C. to buy parts and components from the U.S. companies that it typically does business with.

The latest development hit the semiconductor sector hard. One exchange-traded fund (ETF) fell more than 10% in May.

In the first four months of 2019, the iShares PHLX Semiconductor ETF (SOXX) saw a 35% increase. But as the trade war escalated, the stock market went from euphoria to gloom. SOXX fell 17% in the past month … which is great news for us.

Warren Buffet said that in order to make money in the market, you need to: “Be greedy when others are fearful, and fearful when others are greedy.” And this is exactly what you should keep in mind for the remainder of the trade war.

Greed Over Fear

Many of the companies that make up the SOXX ETF — such as Qualcomm Inc., Texas Instruments Inc., Nvidia Corp., Broadcom Inc. and Intel Corp. — are well-managed and financially sound leaders in their industry.

And after a few quarters of soft earnings, these companies will rebound.

As AI, 5G and the Internet of Things begin to take over the tech industry, the demand for computer chips — made by companies bundled in the SOXX ETF — will soar. And the trade war with China will eventually be resolved.

Now, I can’t tell you exactly when this will happen … or when semiconductor stocks will start to rise. But I can tell you that over the long term, SOXX’s holdings will move higher as they power mega trends that show no sign of slowing down.

With fear surrounding the market, now is the time to be greedy.

All my best,

Charles Mizrahi

Editor, Alpha Investor Report