By Samuel Shen and Tom Westbrook
SHANGHAI/SINGAPORE (Reuters) – Trademark Chinese patriotism is back in the markets. As Japan and the United States impose new restrictions on Chinese tech companies, local investors are snapping up shares of these companies and state-owned companies and reaping handsome rewards.
China has been funneling money into its innovative companies for years, but investors felt the urgency for tech independence this week after the United States threatened to sanction chipmaker Changxin Memory Technologies (CXMT) and that Japan has issued rules to restrict semiconductor exports to China.
“We must choose to stand by our country…and do long-term asset allocation in line with the country’s needs,” Liu Tuoqi, chief investment officer at Shanghai Zhangying Investment Management Co, told investors during of a roadshow, describing the Sino-American conflict as “irreconcilable”.
But there is a silver lining to the technological spat, he added. “It forces us to make fries ourselves… the stronger the wind and the waves, the more expensive the fish.”
Indeed, the stock prices of major Chinese semiconductor equipment makers have surged since late March, when Japan announced it would restrict exports of 23 types of chipmaking equipment. Stocks such as NAURA Technology Group up 14%, Piotech Inc up 45% and ACM Research Shanghai Inc up 19% led the way.
Japan finalized export control rules this week, which took effect July 23, joining the United States in an effort to limit China’s ability to make advanced chips.
Calls by U.S. politicians this week to sanction CXMT following Beijing’s ban on U.S. chipmaker Micron Technology also boosted shares of Chinese memory chipmakers such as ZBIT Semiconductor Inc, up 26% this week. , and Montage Technology Co, up 4%.
The nationalist fervor driving these select 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 indexes rallied in anticipation of a bumper post-pandemic recovery, but have erased all gains since.
Brokerage firm Citic Securities said U.S. and Japanese restrictions on China’s chipmaking industry will only accelerate Chinese efforts to replace foreign technology and invite stronger government support.
STATE BEVERAGE ENTERPRISES REASSESSED
Reflecting the flag-waving fervor, at least eight asset managers have asked China’s securities regulator to launch the first batch of investment products tracking the CSI Computing Infrastructure Index, considered the most vulnerable to foreign sanctions and a vital domain in technological warfare. .
New fund launches will potentially funnel money into Chinese technology and chipmaking leaders including ZTE Corp, Unisplendour Co, Montage and Cambricon Technologies.
It comes as investors are also being subtly pressured – 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 war. Sino-American technology.
“If we want to achieve technology replacement in the future, public companies are the best platform,” said Yang Zhenjian, fund manager at Bosera Asset Management.
Cutting-edge innovation requires huge, long-term investments that are beyond the capabilities of private companies, “but state-owned enterprises can do it,” Yang said.
To facilitate fundraising for state-owned enterprises, Chinese regulators have since late last year called for a reassessment of the public sector, increasing shares of blacklisted US companies such as China Mobile, China Telecom and China Unicom.
An index that tracks innovative central state-owned enterprises has jumped 14% this year.
Yuan Yuwei, hedge fund manager at Water Wisdom Asset Management, said he was bullish on Chinese chip equipment companies, state-owned telecom giants and local software makers challenging their American rivals in China.
For example, Kingsoft Office, a Microsoft rival widely embraced by Chinese governments and state-owned enterprises, has jumped nearly 50% this year.
Liu of Zhangying Investment admitted there was scum in some Beijing-backed sectors. For example, China’s chip manufacturing sector now trades at 60x earnings, compared to 16x for the broader market.
But “China needs a high valuation in certain sectors…Why don’t you lower your bet, while supporting the country’s development?”
(Reporting by Samuel Shen and Tom Westbrook; Editing by Vidya Ranganathan and Kim Coghill)