- Rising tensions between the US and China represent the biggest risk to technology stocks, Wedbush analyst Dan Ives said in a note on Monday.
- Adding to tensions is the potential delisting of Chinese stocks like Alibaba and Baidu from US exchanges.
- “This complex Rubik’s cube geopolitical battle is worth at least a 10% negative overhang on the NASDAQ,” Ives said.
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The “Cold Tech War” between the US and China is an overhang for the technology sector and currently represents its biggest risk, according to a Monday note from Wedbush analyst Dan Ives.
The Biden administration has taken a “much firmer stance” on Beijing, intellectual property theft, and US exchange listings of Chinese stocks than Wall Street was expecting since assuming office, according to Ives.
The “hot button issue” remains the potential delisting of Chinese stocks from US exchanges, as the Biden administration has moved forward with a Trump-era law that would compel Chinese stocks to open up its books to US auditors or face delisting.
But China may have leverage in the ongoing dispute, as tech stocks like Apple and Tesla source both demand for their products and a bulk of their supply chain from the country. Apple has “bet the farm” on its Foxconn factory in China while Tesla’s market share in the country continues to increase, Ives highlighted.
“Now worries from investors around the other shoe to drop with retaliation from Beijing/President Xi around US tech firms” would likely hit Apple, Tesla, Cisco and semiconductor names the hardest, according to the note.
The idea that “big brother is watching” was made apparent earlier this month when China restricted the use of Tesla products for its government officials on concerns that its number of cameras and sensors could be used for spying. Tesla CEO Elon Musk strongly pushed back against those fears, saying the company would be “shut down” if spying occurred.
“This complex rubik’s cube geopolitical battle is worth at least a 10% negative overhang on the NASDAQ/tech sector currently as white knuckle fears around rising tensions between the US and China is starting to grow again on the street,” Ives said.
Technology stock risks associated with rising interest rates, a rotation trade out of tech and into cyclical stocks, and the potential for anti-trust regulation are eclipsed by the continued tensions between the US and China and whether or not the Biden administration extends an olive branch to President Xi, Ives concluded.