The resurgence in geopolitical tensions between China and other countries has prompted some investors to shift their asset allocations away from companies exposed to China. The latest challenges include the Chinese government’s position on Apple (AAPL) and the news that the European Union was investigating Chinese subsidies for electric vehicles.
The concerns about China have investors fleeing some mega-cap technology stocks with major exposure to China, such as Apple and Nvidia (NVDA), and moving into other mega-cap technology stocks without China exposure, such as Alphabet (GOOGL) and Meta Platforms (META), both of which are blocked from operating in China. Also, Amazon.com (AMZN), which exited China, should benefit.
Fiduciary Trust Company said, “We are significantly underweight stocks with China exposure, driven by concerns over investor protections, the country’s economic competition with the West, and the simple reality that China is not the growth engine it once was.”
Other investment managers are beginning to diversify some of their assets away from mega-cap technology stocks with significant exposure to China. Winslow Capital Management said China’s move to restrict the use of Apple products in state-owned companies and other government agencies “suggests things could become incrementally more difficult for Apple or other companies with large chunks of China revenue.” Winslow Capital Management, which owns both Apple and Tesla in its portfolio, said it is underweight the pair relative to their size in the Russell 1000 Growth Index.
A recent Bank of America global fund manager survey shows that due to broader concerns about China’s struggling economy, investors have shifted their equity allocations toward the U.S. and away from China, saying the “avoid China” theme has become one of the biggest convictions among its surveyed investors. According to the survey, emerging markets asset allocation fell to a net 9% overweight in September from 34%, the lowest reading since November 2022. In contrast, allocation to U.S. equities rose 29 percentage points to a net 7% overweight, the first overweight reading since August of last year.
Other mega-cap technology companies besides Apple, which received 19% of its revenue from China last year, have significant revenue exposure to China. Tesla (TSLA) and Nvidia get more than 20% of their annual revenue from China. Also, Broadcom’s (AVGO) China revenue exposure is 35%, and Qualcomm’s (QCOM) revenue exceeds 60%.
According to Fiduciary Trust Company, revenues taking a hit, or the potential exposure of having to reconfigure supply chains should tensions mount, could weigh on the stocks of companies with significant China exposure. “Neither are very encouraging for any company with exposure to China. This issue is hanging over all of them, and it has to be priced accordingly.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
