ETFs to Watch Ahead of U.S.-North Korea Summit

The United States and North Korea are gearing for the historic summit to be held in Singapore on Jun 12. U.S. President Donald Trump and North Korean leader Kim Jong Un will discuss denuclearization.

The likelihood of this meeting was in question even a few days back as Trump had called it off in late May citing North Korea’s “tremendous anger and open hostility” toward Washington. However, North Korean chief adopted a peacemaking tone, probably sensing possibilities of a war, after which the summit was fixed.

Strained relations between the United States and North Korea have been dominating the headlines for long. Now, the countries will come together to discuss how prolonged peace can be maintained on the Korean Peninsula.

However, it will be hard to reach a simple solution over denuclearization. According to Pyongyang, it will only relinquish nuclear weapons (what the United States wants from North Korea) if Washington complies with certain conditions, including eliminating American troops from South Korea.

North Korea also wants "the U.S. regional nuclear umbrella" to end. This is a security plan under which Washington vows to hit back on behalf of close allies if they face a nuclear attack, per CNBC.

Thus, it goes without saying that if the summit fails to reach a peaceful conclusion over denuclearization, tensions will linger. This puts the following ETF areas in focus.

Likely Gainers

Defense

Any negative developments in the U.S.-North Korea relationship will turn investors to defense stocks and related funds as the sector benefits from war-related tensions. This puts the spotlight on defense ETFs like SPDR S&P Aerospace & Defense ETF XAR and Invesco Aerospace & Defense ETF PPA.

Gold

Gold is often viewed as a safe-haven asset that provides a hedge against financial risks and may perform well during heightened market volatility. SPDR Gold Shares GLD gained about 0.1% on Jun 8.

Yen

The Japanese currency, yen, is often considered a classic safe-haven asset.  Also, slightly lower expectations of a faster Fed rate hike this year dampened the dollar to some extent and might boost the yen.

Investors can target this currency via FXY, which measures the value of yen against the greenback. Invesco CurrencyShares Japanese Yen ETF FXY advanced 0.2% on Jun 8 (see: all the Currency ETFs here).

Treasury Bonds

North Korea tensions could also bring this safe asset in the limelight despite Fed rate hike talks. Dimming prospects of faster-than-expected Fed rate hike and geopolitical concerns may lead treasury valuation higher. iShares 20+ Year Treasury Bond ETF TLT should thus be closely watched (read: Quality ETFs in Focus on Dovish Fed).

Consumer Staples

If we look for any sector-specific winners, safe and non-cyclical sectors like consumer staples should stand out. Also, a small-cap criterion attached to it will benefit investors as these pint-sized stocks are domestically-focused and have less to do with geo-political tensions. Invesco S&P SmallCap Consumer Staples ETF PSCC) should thus be closely watched (read: Fed, Trade & Global Politics to Rule June: 6 ETF Picks).

Likely Losers

Asia

Asian stocks may get a blow if no positive conclusion is reached. This will deal a blow to ETFs like Vanguard FTSE Pacific ETF VPL, iShares MSCI South Korea Capped ETF EWY and iShares MSCI Japan ETF EWJ.

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ISHARS-20+YTB (TLT): ETF Research Reports
 
CRYSHS-JAP YEN (FXY): ETF Research Reports
 
GOLD (LONDON P (GLD): ETF Research Reports
 
ISHARS-JAPAN (EWJ): ETF Research Reports
 
VANGD-FTSE PAC (VPL): ETF Research Reports
 
SPDR-SP AER&DEF (XAR): ETF Research Reports
 
ISHARS-S KOREA (EWY): ETF Research Reports
 
PWRSH-AERO&DEF (PPA): ETF Research Reports
 
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