Tech rivalry between the United States and China is adding to the problems of stock investors

The fierce rivalry between China and the United States for technological supremacy is adding new pain points for the world’s second-largest stock market, as the Biden administration ramps up efforts to reduce economic dependence on the Asian country.

From biotech to electric cars, stocks of major Chinese manufacturers have seen heavy selling lately as US initiatives to secure domestic supply chains and solidify their industrial edge have raised uncertainty for Chinese companies. China’s MSCI index is down more than 7% this month, versus a 2.5% drop in the global measure.

Investors are also concerned that rising tension over Beijing’s stance on Russia and Taiwan could accelerate economic decoupling. President Xi Jinping’s meeting with his Russian counterpart last week was closely watched by traders for any gesture that might provide a basis for US sanctions.

“China’s relationship with the United States will remain challenging in 2022 and beyond with geopolitical risks remaining high as both economies see each other as competitors,” said Zhikai Chen, head of emerging Asian and global equity markets at BNP Paribas Asset Management. Focus on defensive and policy recipient names and avoid those at higher geopolitical risk.”

Recent developments have dampened sentiment in a market reeling from strict Covid restrictions, a weak economy and a slump in the property market. Chinese equity metrics are among the major benchmarks that have performed the worst this year.

Additional bright spots may emerge as Presidents Joe Biden and Xi face major policy tests in the coming months – the US midterm elections and the Communist Party convention. Nicholas Yu, head of China equities at abrdn plc, said market volatility could increase with the risk of “noise around China” in the US campaign.

Just last week, leading biotech company Wuxi Biologics Cayman fell nearly 20% in a single day after Biden’s executive order to boost domestic biomanufacturing. Electric car makers also backed down after China’s ambassador to the United States warned of the danger of trying to cut the country off from auto supply chains.

Investors will have to prepare for more volatility. Biden appears set to sign an executive order in the following days that ramps up national security reviews on foreign investments, while applying new standards to sectors including semiconductors, artificial intelligence, biotechnology and clean energy technologies.

Tech Battlefield

On the other hand, some see investment opportunities with increasing strength of China’s self-sufficiency.

“Any domestic semiconductor company will be supported by the Chinese government,” said Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis Corporate & Investment Banking, adding that questions remained about how well these companies would succeed under pressure from the United States.

The second-quarter profit of the semiconductor manufacturer, the largest chip maker in China, exceeded estimates and estimates Hong KongListed stocks rose 3.2% in September, versus a 6% drop in the Hang Seng Index.

earlier this month, something Renewed calls for intensified technological development. This came after prioritizing the role of state institutions in recent years over private giants such as Alibaba Group Holding Ltd. or Tencent Holdings Ltd. in stimulating technological progress.

But the unpredictable nature of geopolitical tensions means that China stock It is a market that some investors avoid.

“I see decoupling on the rise, and my allocation to stocks in China is still zero,” said Brock Silvers, chief investment officer at private equity firm Kaiyuan Capital. Weakness in the Chinese economy has “significantly reduced its attractiveness in relation to the risks associated with it”. he added.

This story was published from the news agency feed without modifications to the text.

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