The debate over whether Chinese-owned TikTok can operate in the US has returned with fervor, revealing more about the risks to Chinese stocks in a US presidential election year. The committee that led the TikTok bill passed by the House last week has another bill among its many policy proposals aimed at curbing Chinese biotech companies. Such considerations have prompted analysts at Goldman Sachs to update their model for measuring the level of risk of US-China tensions for Chinese stocks. Their barometer, created in 2020, “correlates well with the US-China development chart and Chinese equity performance,” analysts said. They said recent events mean they need to consider more factors, such as the activities of Chinese exporters to the U.S., artificial intelligence names and nearly 150 Chinese healthcare companies. Goldman’s revised barometer of U.S.-China tensions stands at a modest 53 out of 100, indicating a “somewhat favorable” outlook for the bilateral relationship. While some factors, such as geopolitics, have improved, others are on the rise. “Risks in the soft tech space have increased in recent months, which we believe is likely driven by market volatility caused by the proposed biosecurity bill, as well as expanding/increasing restrictions on artificial intelligence and other advanced technologies,” the analysts wrote. Goldman in its report. report dated March 14. The House Select Committee on Strategic Competition between the United States and the Chinese Communist Party submitted a draft Biosecurity Act to the House of Representatives in late January. “Once enacted, the legislation will restrict federally funded health care providers from using hostile foreign biotechnology companies of concern,” the committee said, naming several Chinese companies in particular. It’s unclear how quickly the bill and its Senate version can move through Congress, if at all. The latest TikTok legislation, which would effectively ban the app in the US 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 heading to the Senate, many analysts expect the pace to slow. “The key issue for the Senate is that the House bill addresses only TikTok, not larger policy restrictions on apps that pose potential national security threats,” Raymond James analysts said in a note. That hasn’t stopped investors from making plans to buy the popular TikTok app if it goes on sale. Former Treasury Secretary Steven Mnuchin told CNBC’s “Squawk Box” that he supports TikTok legislation and is assembling a group to buy the app. Mnuchin was Treasury secretary under Donald Trump, who is running for president again this November against President Joe Biden. Taking a tough stance on China has become a rare area of bipartisan agreement. The Trump administration has increased tariffs on Chinese goods, prompting Beijing to take similar action on some American goods. The Biden administration has limited Chinese businesses’ access to high-quality semiconductors that Beijing has repeatedly asked the US to remove. “The lead-up to and outcome of the election will have important implications for global asset markets, U.S.-China relations and Chinese stock performance,” Goldman analysts said. Investing Around It In their updated model of US-China tensions, they also highlighted which Chinese stocks tend to outperform or lag when their barometer rises. Based on data since 2018, Goldman’s analysis found that three stocks listed in mainland China tend to perform best when the tension barometer rises: healthcare company IMEIK Technology, Postal Savings Bank and liquor company Luzhou Laojiao. In terms of sectors, consumer discretionary “tends to outpace the pace of growth in implied tensions,” Goldman said in a report. When the barometer points to de-escalation, capital goods, technology equipment, semiconductors and other cyclicals tend to outperform, analysts say. — CNBC’s Michael Bloom contributed to this report.
