The debate over whether Chinese-owned TikTok can operate in the United States has returned with force, revealing more risks to Chinese stocks in a US presidential election year. The committee that led the TikTok-related legislation that passed the House of Representatives last week has another bill aimed at restricting Chinese biotech companies, among many policy proposals. Such considerations prompted Goldman Sachs analysts to update their model to measure the level of risks posed by US-China tensions in Chinese stocks. The analysts said their measure, created in 2020, “correlates well with the timeline of events between the US and China, and the performance of Chinese stocks.” They said recent events mean they have to consider more factors, such as the performance of Chinese exporters to the US, the names of AI and nearly 150 Chinese healthcare companies. Goldman's revised US-China tensions scale stands at a modest 53 out of 100, indicating a “moderately benign” outlook for bilateral relations. While some factors, such as geopolitics, have improved, others are on the rise. “Risks in soft technology have risen in recent months, and in our view are likely driven by market volatility caused by the proposed BioSecure bill and expanded and intensified restrictions on artificial intelligence and other advanced technologies,” Goldman Sachs analysts wrote in their report. March 14 report. The House Committee on Strategic Competition between the United States and the Chinese Communist Party in late January submitted a draft of the “Biosecurity Act” to the House of Representatives. “Once enacted, the legislation would prevent federally funded medical providers from using competing foreign biotechnology companies of concern,” the committee said in a statement, naming a few Chinese entities in particular. It's not clear how quickly the bill and its Senate version can pass through Congress, if at all. TikTok's latest legislation — which effectively bans the app in the United States unless its Chinese parent company ByteDance sells it — was introduced in the House of Representatives on March 5 and passed just over a week later. But with the TikTok bill now reaching the Senate, many analysts expect its momentum to slow. “A key issue for the Senate is that the House bill is specific to TikTok, rather than imposing greater policy restrictions on apps that pose potential national security risks,” Raymond James analysts said in a note. But that hasn't stopped investors from making plans to buy the popular TikTok app, assuming it's for sale. Former Treasury Secretary Steven Mnuchin told CNBC's “Squawk Box” that he supports TikTok legislation and is forming a group to buy the app. Mnuchin was Treasury Secretary under Donald Trump, who is running for president again this year in November against President Joe Biden. Taking a tough stance on China has become a rare area for reaching bipartisan agreement. The Trump administration increased tariffs on Chinese goods, prompting Beijing to take similar measures on some American products. The Biden administration has restricted Chinese companies' access to advanced semiconductors, which Beijing has repeatedly asked the United States to remove. Goldman Sachs analysts said, “The preparation for the elections and their results will have an impact on global asset markets, US-China relations, and Chinese stock returns.” Investing Around In their updated model of US-China tensions, they also pointed to Chinese stocks tending to outperform or underperform when their measure rose. Based on data since 2018, the three stocks listed in mainland China that Goldman's analysis found tend to perform better when the measure of tensions rises are: healthcare company IMEIK Technology, Postal Savings Bank, and alcohol company Luzhou Laojiao. Regarding sectors, the Goldman Sachs report said consumer sectors “tend to outperform when underlying tensions escalate.” When the gauge indicates de-escalation, capital goods, technology devices, semiconductors and other cyclical products tend to outperform, analysts said. — CNBC's Michael Bloom contributed to this report.
