INVESTORS BANKING ON CHINA’S TECH LOCALIZATION PLAN
As the US-China “tech war” widens, investors are betting on China’s efforts to replace US technologies with indigenous applications to run networks in the state sector, Samuel Shen and Josh Horwitz reported for Reuters late on August 20, 2020.
An index tracking Chinese IT stocks has jumped nearly 30% this year, doubling blue-chip gains. “We’re seeing more US actions against China, and the future tends to be ‘one world, two systems’,” said Wu Kan, portfolio manager at Soochow Securities Co, who has invested in local tech leaders including China National Software & Service Co. Ltd., China Greatwall Technology Group and Beijing Kingsoft Office Software. “Any segment that faces decoupling risks represents big investment opportunities.”
Some market watchers warn valuations of China tech stocks are getting frothy at roughly 60 times trailing earnings, noting Chinese firms could take years to catch-up to established global players. But Wu said price levels are justified by growth potential and direct government backing.
The Trump administration has recently strengthened restrictions on China’s Huawei Technologies and sanctioned China-owned apps TikTok and WeChat. Washington also rolled out a “Clean Network” initiative to exclude Chinese tech firms perceived as threatening national security. Ninety-five per cent of Chinese servers use CPUs from Intel, a US company.