The intensifying friction between the US and China is now reverberating throughout the rare earth metals market, with a particularly significant impact on Exchange-Traded Funds (ETFs) like the VanEck Rare Earth and Strategic Metals UCITS ETF (REMX). The surge in rare earth metals prices, catalyzed by China’s export restrictions, has captured the attention of investors eyeing substantial gains in the ETF sector.
China’s dominant position in the production and processing of rare earth metals, with an astounding 70% market share, sets the backdrop for this potential upheaval. Rare earth metals, often deemed illiquid commodities, are the lifeblood of many emerging and existing technologies. The move to restrict exports of germanium and gallium, both key to high-tech applications from fiber optic cables to military-grade devices, has pushed prices higher and availability lower.
REMX, designed to track the MVIS Global Rare Earth/Strategic Metals index, is poised to benefit from this volatility. With investments in 28 companies actively involved in rare earth and strategic metal production, REMX has positioned itself to capitalize on the escalating prices. Currently, over 35% of its investments are in Chinese companies, while more than 48% are in Australian and US producers and processors. Launched in 2021, REMX has already amassed a considerable $139 million in assets under management.
If China extends its export restrictions to encompass rare earth metals, REMX could experience a substantial upswing, as investors anticipate soaring metal prices and diminishing availability. As the global tech industry navigates this unprecedented situation, the ETF sector might just be the unexpected beneficiary, reaping rewards from the growing tensions between economic powerhouses.
