Investors in the U.S. expressed concerns about potential retaliation from China and a decrease in Chinese purchases of American technology following President Joe Biden’s move to restrict certain U.S. technology investments in China. The executive order was issued to safeguard national security and prevent U.S. capital and expertise from supporting China’s military modernization efforts. While initial reactions to the restrictions were relatively calm, investors were more worried about China’s response, considering its past actions.
Rick Meckler, a partner at Cherry Lane Investments, stated that the outcome would depend on China’s reaction and emphasized the negative impact of the ongoing technology war between the two countries. The Biden administration seemed to make the announcement without causing too much disruption in its relationship with China. Despite these concerns, the iShares MSCI China Exchange Traded Fund, which includes U.S.-listed China-based companies, saw a 0.7% increase, while the rest of Wall Street remained flat.
China’s commerce ministry expressed grave concern and reserved the right to take counter-measures in response to Biden’s executive order. However, some analysts believe that China’s options are limited and that the situation is unlikely to escalate. Others, however, hold a less optimistic view. They point to China’s previous actions, such as targeting U.S. chip maker Micron Technology, as evidence that retaliation is probable. Tom Plumb, CEO of Plumb Funds, warned that China could restrict exports of rare earths or target other U.S. technology companies.
The article highlights the concept of self-sufficiency, with China aiming to reduce its dependency on U.S. companies for advanced technology. This shift could also impact the flow of capital into U.S. companies and markets. American investors have been accused of transferring capital and valuable know-how to Chinese technology companies, potentially aiding Beijing’s military capabilities. As a result, U.S. private equity and venture capital investors have already reduced their involvement in China, and some portfolio investors are decreasing their exposure as well.
Michael Ashley Schulman, chief investment officer at Running Point Capital Advisors, mentioned that some clients have requested reduced or zero exposure to China through stocks, bonds, and ETFs. Phillip Wool, co-portfolio manager of Rayliant Quantamental China Equity ETF, expressed concern that tensions between the U.S. and China are causing investors to miss out on opportunities for growth in the Chinese market. He emphasized the low valuations and strong fundamentals of many Chinese companies.
In conclusion, the article highlights the concerns of U.S. investors regarding potential retaliation from China and a decrease in Chinese purchases of American technology. It also discusses China’s aim for self-sufficiency and the impact on U.S. investors and markets.
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