By Samuel Shen and Tom Westbrook
SHANGHAI/SINGAPORE (Reuters) – Distinctive Chinese patriotism is once again playing a role in the markets. As Japan and the United States impose new restrictions on Chinese technology companies, local investors are picking up shares of those companies and state-owned companies and reaping handsome rewards.
China has been funneling money to its innovative companies for years, but investors felt an urgency for technology independence this week after the United States threatened to impose sanctions on chipmaker Changxin Memory Technologies (CXMT) and Japan published rules to limit semiconductor exports to China .
“We must choose to stand with our country… and allocate long-term assets in accordance with the needs of the country,” Liu Tuoqi, head of investment at Shanghai Zhangying Investment Management Co, told investors in a roadshow, describing the Sino-American conflict as “irreconcilable”.
But there’s a silver lining in the technical spat, he added. “It forces us to make our own chips… the higher the wind and waves, the more expensive the fish.”
Indeed, stock prices of China’s leading semiconductor equipment manufacturers have risen since late March, when Japan announced it would restrict exports of 23 types of chip-making equipment. Stocks such as NAURA Technology Group, up 14%, Piotech Inc up 45%, and ACM Research Shanghai Inc up 19%, led the way.
Japan this week finalized its export control rules, which take effect on July 23, joining the US in trying to curb China’s ability to make advanced chips.
Calls from US politicians this week to sanction CXMT following Beijing’s ban on US chipmaker Micron Technology also boosted shares in Chinese memory chipmakers such as ZBIT Semiconductor Inc, up 26% this week, and Montage Technology Co, up 26% this week. of 4%.
The nationalistic enthusiasm fueled by these selected sectors and stocks has also been lucrative for investors in an environment of slow and uneven domestic growth following China’s economic reopening in January. China’s benchmark stock indices rose in anticipation of a post-pandemic bumper recovery, but have since wiped out any gains.
Brokerage Citic Securities said US and Japanese action against China’s chip industry will only accelerate China’s efforts to replace foreign technology and invite more government support.
LUMBERING STATE ENTERPRISES REVALUATED
As a result of the fiery flag, at least eight asset managers have applied to China’s securities regulator to launch the first set of investment products tracking the CSI Computing Infrastructure Index, which is considered the most vulnerable to foreign sanctions and a vital area in the tech industry. war .
The launch of new funds will potentially channel money to China’s technology and chip manufacturing leaders, including ZTE Corp, Unisplendour Co, Montage and Cambricon Technologies.
It comes as investors are also being subtly urged – via favorable brokerage reports and mutual fund launches – to invest in state-owned enterprises (SOEs), which Beijing hopes can play a key role in the Sino-US technology war.
“If we want to achieve technology replacement in the future, state-owned companies are the best platform,” said Yang Zhenjian, fund manager at Bosera Asset Management.
Sophisticated innovation requires huge long-term investments beyond the capabilities of private companies, “but state-owned companies can do it,” Yang said.
To facilitate fundraising by state-owned companies, Chinese regulators have been calling for a revaluation of the state sector since late last year, boosting shares in US blacklisted companies such as China Mobile, China Telecom and China Unicom.
An index that tracks innovative central state companies is up 14% this year.
Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management, said he is optimistic about Chinese chip equipment companies, state-owned telecom giants and indigenous software makers challenging US rivals in China.
For example, Kingsoft Office, a competitor of Microsoft that is being widely adopted by Chinese governments and state-owned companies, is up nearly 50% this year.
Liu of Zhangying Investment admitted that there is some froth in certain sectors supported by Beijing. For example, China’s chip manufacturing sector now trades at 60 times earnings, compared to 16 for the broad market.
But “China needs high valuation in some sectors… Why not put your bet down and support the country’s development at the same time?”
(Reporting by Samuel Shen and Tom Westbrook; editing by Vidya Ranganathan and Kim Coghill)