One of the biggest rebound stories of the year so far has been investors coming back to Chinese equities, but the geopolitical rivalry between the U.S. and China looms for both markets. Epitomized by U.S. regulations looking to kneecap China’s chip industry, the dispute could instead benefit America’s neighbors to the south and to the north. The latter, Canada, may be particularly interesting this year for investors, available in a Canada ETF like the Franklin FTSE Canada ETF (FLCA ).
The U.S. rules to limit American involvement in China’s burgeoning semiconductor industry threatens to inflame and escalate an already heightened trade dispute going back even before the Trump Administration’s tariffs. It’s already taken a bite out of U.S. imports of certain Chinese products, and is a trend to watch.
What’s more, supply chain issues are still lingering for logistics managers, with more than half of managers surveyed saying they don’t expect the supply chain to return to normal until 2024 or after. That could be to the benefit of the two closest nations to the U.S., Mexico and Canada — presenting the case for a Canada ETF like FLCA.
The low-fee strategy has outperformed its ETF Database and Factset Segment Average over the last month, returning 6.6% over one month compared to 6.5% for the former and 6.4% for the latter. FLCA has also seen a notable uptick in inflows over the last five days, adding $37 million in that time.
FLCA charges just nine basis points for its exposures, investing in an index of large and mid-size firms in Canada in the FTSE Canada RIC Capped Index. The Royal Bank of Canada (RY), the Toronto-Dominion Bank (TD), and the Bank of Montreal (BMO) are notable names weighted at 8.6%, 7.6%, and 4.2% respectively, which may be a good sign given that Canada’s big banks are expected to buck the layoff trend right now.
U.S. equities may be a bit overvalued right now, but the U.S. economy looks to be set for a soft landing this year, with the prospect of a recession dimming to some. Should that be the case, Canada’s proximity could give it some knock-on benefits including a higher place in the U.S. trade network given geopolitical problems with China. For investors looking abroad to invest, it may make sense to look close to home with FLCA.
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