The heated rivalry between the US and China for tech supremacy has resulted in the Biden administration taking fresh steps to ensure that the US economy is less dependent on China. The second largest stock exchange in the world – the tech-heavy Nasdaq, is feeling the pain.
Uncertainties for shares of Chinese companies ranging from electric vehicles to biotech have resulted in heavy selling on the stock market. US initiatives to secure a supply chain domestically and strengthen its industrial superiority have raised uncertainties for key chines manufacturers. The MSCI Chines Index fell more than 7% this month compared to a 2.5% global decline.
Beijing’s stand on Russia and Taiwan has added to the rising tension among investors. The economy may deaccelerate on these developments. President Xi Jinping’s meeting with Putin last week was watched closely by traders looking for signals that may provide an excuse for US sanctions.
According to Zhikai Chen, the head of the Global and Asian emerging equity market at BNP Paribas, the relationship between US and China will remain challenging this year as both countries view each other as competitors.
The Chinese stocks have been the worst performing benchmark this year as their economy struggle with tough Covid restrictions, geopolitical developments, real estate slump, and a general weakening economy.
The mid-term elections later this year and the communist Party Congress will be key political tests for President Biden and Xi, leading to new flashpoints.
Aberdeen PLC Chines equity head Nicholas Yeo said equity volatility would increase when noise centering around China is heard in the mid-term campaign.
Biotech bell weather shares Wuxi Biologics Cayman Inc. crashed 20% last week in a single day after Biden encouraged domestic bio-production. EV shares also fell as China warned the US to cut the supply chain from China.
Further swings are on the cards as the Biden administration is set to issue orders where national security is reviewed on foreign investments. A new criterion will apply to sectors such as artificial intelligence, semiconductors m, clean energy, and biotech technologies.
Tech Battlefield
On a positive note, many see investment opportunities when China’s indigenous drive gathers pace. Alicia Garcia Herrero, who works with Natixis Corporate and Investment Banking as Chief Economist for the Asia Pacific, said that the Chinese government would support home-grown chips. She said that it remains to be seen how much these companies succeed with pressure from the US.
China’s biggest chipmaker, Semiconductor Manufacturing International Corp.’s profit for this second quarter surpassed estimates. The shares listed on the Hong Kong stock exchange jumped 3.2% in September compared to a 6% decline in Hang Seng Index.
Earlier in September, Xi called to increase tech development after prioritizing state corporations over private players such as Alibaba Group or Tencent Holding.
