Should You Buy-Low on This Asia-Focused ETF?

The trade war between the United States and China has intensified in recent weeks and in July the Trump administration announced it would review additional tariffs of up to $200 billion that could be imposed by the end of August. Asian markets, particularly the Shanghai Composite Index, have been pummeled in the midst of this escalating exchange. China, which had committed to retaliatory tariffs in the past, has expressed its intention to challenge this latest round through the World Trade Organization (WTO).

The iShares MSCI All Country Asia ex Japan ETF (NYSE:AAXJ) has dropped 5.6% in 2018 as of close on July 13. Shares are still up 2.4% year over year. The bout of protectionism that threatens the global economy makes this a very risky play this summer.

Even before the outbreak of this trade spat China was facing challenges as growth was expected to slow in the coming years. Chinese leadership had made the commitment to impose credit restrictions after economic turmoil racked the nation in 2015 and 2016. The Chinese economy grew at a 6.7% rate in the second quarter, which was in line with market expectations.

The Shanghai index was down half a percentage point during trading as of this writing. Investors would do well to take the escalating trade conflict between the U.S. and China very seriously. There is no indication that the sides have come closer to a deal that could prevent further tariffs. Investors should steer clear of the iShares MSCI All Country ex Japan ETF this summer.