TikTok debate reveals the risks of investing in China during US election year | Private Equity Weekly
The debate over whether the Chinese company TikTok can operate in the United States has heated up again, revealing more about the risks facing Chinese stocks in a U.S. presidential election year. Among the many policy proposals passed by the TikTok Legislative Leadership Committee last week was another bill aimed at restricting Chinese biotech companies. These considerations prompted analysts at Goldman Sachs to update a model measuring the level of risk in Chinese stocks from U.S.-China tensions. The analysts said the barometer they created in 2020 was “closely tied to the timeline of events in the U.S. and China, as well as Chinese stock market performance.” They said recent events mean they must consider more factors, such as the performance of Chinese exporters to the United States, artificial intelligence names and nearly 150 Chinese health care companies. Goldman Sachs’ revised Sino-US tensions barometer is a moderate 53 out of 100, indicating that the outlook for bilateral relations is “somewhat benign.” While some factors, such as geopolitics, have improved, others have increased. “We believe ‘soft technology’ risks have increased in recent months, possibly due to proposed biosecurity legislation and expanded restrictions on artificial intelligence and other advanced technologies,” Goldman Sachs analysts wrote in a note. / Strengthening caused by market volatility.” March 14 report. The House Special Committee on U.S.-China Strategic Competition submitted a draft of the “Biosecurity Bill” to the House of Representatives in late January. “If enacted, this legislation would restrict the use of foreign rival biotech companies by federally funded health care providers,” the committee said in a news release, specifically naming some Chinese entities. It’s unclear how quickly, if at all, the bill and its Senate version could pass Congress. The latest TikTok legislation, introduced in the House of Representatives on March 5 and passed just over a week later, effectively bans the app in the United States unless it is sold by its Chinese parent company ByteDance. But with the TikTok bill now before the Senate, many analysts expect its momentum to slow. “A key issue facing the Senate is that the House bill is specific to TikTok, rather than imposing greater policy restrictions on the app that poses potential national security risks,” analysts at Raymond James said in a report. That hasn’t stopped investors from planning to buy the popular TikTok app, assuming it’s about to be sold. Former Treasury Secretary Steven Mnuchin told CNBC’s “Squawk Box” that he supports TikTok legislation and is putting together a team to buy the app. Mnuchin served as Treasury secretary under Donald Trump, who ran for president again in November against President Joe Biden. Taking a tough stance on China has become a rare area of bipartisan consensus. The Trump administration has increased tariffs on Chinese goods, prompting Beijing to take similar action against some U.S. products. The Biden administration has restricted Chinese companies’ ability to obtain high-end semiconductors, and Beijing has repeatedly asked the United States to lift the restriction. “The lead-up to and outcome of the election will have an important impact on global asset markets, U.S.-China relations, and Chinese stock market returns,” Goldman Sachs analysts said. Invest around it In their latest model of U.S.-China tensions, they also noted, Which Chinese stocks tend to outperform or underperform when the barometer rises. A Goldman Sachs analysis found that the three mainland China-listed stocks that tend to perform best when the barometer of tensions rise are: health care company IMEIK Technology, Postal Savings Bank of China and liquor company Luzhou Laojiao, based on data from 2018. Goldman Sachs’ report said that among industries, the consumer sector “tends to outperform when underlying tensions escalate.” Analysts said capital goods, technology hardware, semiconductors and other cyclical stocks tend to outperform when the barometer points to an easing. —CNBC’s Michael Bloom contributed to this report.
