Strategic Semiconductor ETF Picks as China's Inflation Hits Three-Year High

Core Insights - China's consumer price inflation (CPI) has reached a three-year high of 0.8%, while producer prices have decreased by 1.9% year over year, creating a complex scenario for global semiconductor investors [1][2][10] - China accounts for approximately one-third of global semiconductor consumption, making its inflationary pressures significant for the industry [2][4] - Rising costs in China due to inflation are expected to squeeze the profit margins of global chip manufacturers, as they face increased expenses for raw materials and labor [3][7] Semiconductor Industry Dynamics - China controls about 70% of global rare-earth mining and over 90% of refining capacity, making it a critical player in the semiconductor supply chain [5] - The U.S. is heavily reliant on imports for over 80% of its rare-earth needs, with 99% dependence on China for specific refined minerals [6] - The final stages of semiconductor production, including Advanced Packaging and Testing, are still concentrated in China, further complicating the supply chain [6] Investment Strategies - Traditional semiconductor ETFs like SMH, SOXX, and SOXQ are exposed to Chinese inflation due to their significant investments in companies with high revenue from China [8] - Alternative ETFs such as Invesco Semiconductors ETF (PSI), First Trust NASDAQ Semiconductor ETF (FTXL), and Strive U.S. Semiconductor ETF (SHOC) focus more on U.S.-domiciled companies, potentially reducing exposure to China-linked risks [9][11] - PSI has gained 43.6% over the past year, while FTXL and SHOC have surged 59.1% and 54.2%, respectively, indicating strong performance amid the current market conditions [14][15][17] ETF Highlights - Invesco Semiconductors ETF (PSI) has a market value of $1.1 billion and includes top holdings like Micron Technology (6.29%) and KLA Corp. (4.96%) [12] - First Trust NASDAQ Semiconductor ETF (FTXL) has net assets of $1.43 billion, with top holdings including Micron Technology (15.46%) and Amkor Technologies (5.45%) [15] - Strive U.S. Semiconductor ETF (SHOC) has net assets of $149.5 million, featuring top holdings such as Micron Technology (5.93%) and Texas Instruments (4.65%) [16]