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The Chinese Spy Balloon Is Just the Beginning

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Editor’s Note: The recent tensions between the U.S. and China are shaking up one crucial market sector.

Our friends at Monument Traders Alliance are reaching out to traders to tell them where our country is most at risk.

They’re also showing them how to position themselves for a potential profit amid the recent shifts.

Read on for Head Fundamental Tactician Karim Rahemtulla’s detailed analysis.

– Rebecca Barshop, Senior Managing Editor


China took over front-page news recently after U.S. officials detected one of its surveillance balloons flying over sensitive military sites across America’s heartland…

And while the military was finally able to shoot it down off the coast of the Carolinas…

The incident has already led to the cancellation of Secretary of State Antony Blinken’s diplomatic visit to China…

And with tensions at an all-time high, incidents like what we saw with the balloon are likely far from over.

There are no signs of the United States or China pulling out of their current trade war…

And we’ve already seen both countries increase their military activities in the Taiwan Strait recently.

In fact, we could even see China move to execute a plot to destroy America on a more accelerated timeline. So what can investors do during this international chess match?

Well, like with most international situations, there are always pockets of opportunity for investors to make a profit.

Here are three industries to watch as relations between the two superpowers continue to deteriorate.

Cybersecurity

Over the past decade, we’ve watched China become one of the top cybersecurity threats to America.

In fact, at the World Economic Forum in Davos, Switzerland, last month, FBI Director Christopher Wray said…

The Chinese government has a bigger hacking program than any other nation in the world. And their AI program is not constrained by the rule of law and is built on top of massive troves of intellectual property and sensitive data that they’ve stolen over the years and will be used, unless checked, to advance that same hacking program – to advance that same intellectual property – to advance the repression that occurs not just back home in mainland China but increasingly as a product that they export around the world.

As China’s attacks become more sophisticated and more frequent, U.S. companies and governments will be forced to take increased measures to protect themselves…

Which, of course, benefits the cybersecurity industry. That’s why we’ve previously recommended the First Trust Nasdaq Cybersecurity ETF (Nasdaq: CIBR), which gives you exposure to 36 different cybersecurity companies.

Best of all, it’s still trading around $42!

But if you want action from some of the top names in the industry…

CrowdStrike Holdings (Nasdaq: CRWD) and Palo Alto Networks (Nasdaq: PANW) are two of the key players.

Defense

It’s no secret… China wants to take back the island of Taiwan.

The promise of Taiwan “reunification” has been one of Chinese President Xi Jinping’s top priorities since he took office…

And President Biden has made it clear that the U.S. would defend Taiwan if China chose to attack the island.

Some military leaders – like Admiral Michael Gilday, the highest-ranking officer in the United States Navy – have even said that they “can’t rule out a 2023 window” for a Chinese attack on Taiwan.

If this were to happen, we’re talking about a war much bigger than anything we’ve seen in modern history.

War simulations conducted by military experts at the Center for Strategic and International Studies demonstrated that such a conflict in Taiwan would cost the U.S.

The study concluded that the U.S. and its allies would lose dozens of ships, hundreds of aircraft and thousands of service members.

So… what does that mean for investors?

As we saw when Russia invaded Ukraine, the defense sector would immediately become one of the hottest sectors in the market.

(In fact, it was the fourth-hottest industry in 2022.)

And even if we don’t actually reach the brink of war… America’s military-industrial complex is almost certainly preparing for the worst.

Stocks like Boeing (NYSE: BA), Lockheed Martin (NYSE: LMT) and Raytheon Technologies (NYSE: RTX) are typically great defense stock bets whenever the U.S. military gets involved abroad.

But to get more exposure across the industry, check out these two sector-based ETFs: the iShares U.S. Aerospace & Defense ETF (CBOE: ITA) and the Direxion Daily Aerospace & Defense Bull 3X Shares (NYSE: DFEN).

Mining

As the relationship between China and the United States continues to worsen, we could see a huge disruption in the global mining industry…

Specifically, mines involved with rare earth minerals.

These rare earth minerals are needed for technologies such as displays, lighting systems, power generation, fuel cells, hydrogen storage, rechargeable batteries, and the permanent magnets used in electric and hybrid-electric vehicles…

AND they’re heavily used by the U.S. military for weapons, targeting lasers, communications systems, airframes and aerospace engines, radar systems, optical equipment, sonar, and electronic counter measures.

The problem?

Currently, China mines 63% of the world’s rare earth minerals.

In fact, Politico recently reported that a conflict with China would leave “the U.S.’s access to rare earths, a critical market still dominated by China, highly vulnerable.”

But in recent years, U.S.-based mining companies such as MP Materials (NYSE: MP), Lithium Americas (NYSE: LAC) and Piedmont Lithium (Nasdaq: PLL) have made huge strides in operating mines in North America…

And in the event of a deeper trade war, these companies would be called upon to supply the U.S. economy.

If you’re looking for an ETF to give you exposure to many companies involved in producing, refining and recycling rare earth and strategic metals and minerals, the VanEck Rare Earth/Strategic Metals ETF (NYSE: REMX) is already up 18% on the year and gives exposure to 25 companies.

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