What happened
Shares of several stocks based in China and Hong Kong fell today as geopolitical tensions between the U.S. and China ratcheted up, and due to some negative sentiment from Wall Street.
Shares of the world's largest chipmaker, Taiwan Semiconductor (TSM -0.34%), traded roughly 2.5% lower as of 2:33 p.m. ET today.
Meanwhile, shares of the technology and search engine company Baidu (BIDU 0.98%) traded roughly 4.5% lower, while shares of the online agricultural platform PDD (PDD -0.37%) were down about 3.6%.
So what
Stocks in China and Hong Kong have been struggling more broadly as tensions between the U.S. and China seem to have intensified. The broader benchmark Hang Seng index is down close to 5% over the last week.
Image source: Getty Images.
Various media reports from last week suggest that the Biden administration is gearing up to issue rules that would require U.S. companies to let the government know when they invest in Chinese tech companies and also potentially further curb chip exports from the U.S. to China. Last year, the Biden administration blocked U.S. companies from selling certain chips to China in an effort to slow their development of critical technology like artificial intelligence and supercomputers.
This week, the U.S. reportedly asked South Korea to request that key chipmakers in the country like Samsung not try to grab market share if China bans the American chipmaker Micron from doing business in the country. The Chinese government launched a security review of Micron last month.
In other news, analysts at Goldman Sachs downgraded PDD from a buy rating to neutral and also lowered their price target from $116 to $93, which actually still implies significant upside from the stock's current price of about $64.
Goldman noted that advertising spending could slow in the "current competitive environment." Goldman also said the earnings setup is no longer as attractive and that PDD is likely going to have to increase investments in China and abroad.
Now what
When evaluating stocks in Hong Kong or China, intervention from the Chinese government and geopolitical tensions between the U.S. and China always needs to be top of mind because they can have wide-ranging implications and change quickly.
The Biden administration has certainly been taking a tougher stance toward China and has been looking to limit the development of certain technology in the country, so it wouldn't surprise me if the administration moves forward with these new rules.
Ultimately, though, I think Taiwan Semiconductor, Baidu, and PDD will be OK because they all have critical and extremely innovative businesses within the tech sector and are much larger companies. This should make them more resilient against some of the regulatory and geopolitical obstacles that will likely come their way.
Given how important artificial intelligence and semiconductors have become to the Chinese and global economies for that matter, I do not see companies like Taiwan Semiconductor or Baidu going away anytime soon.
