The resurgence of geopolitical tensions involving China has prompted some investors to reassess their portfolios and reduce their exposure to companies with significant ties to China. Recent concerns have arisen due to the Chinese government’s stance on Apple (NASDAQ:AAPL) and the European Union’s investigation into Chinese subsidies for electric vehicles.
Investors are now shifting away from mega-cap technology stocks heavily exposed to China, such as Apple and Nvidia (NASDAQ:NVDA). Instead, they are turning to mega-cap tech stocks that have minimal or no exposure to China, such as Alphabet (NASDAQ:GOOGL) and Meta Platforms (NASDAQ:META), both of which are restricted from operating within China’s borders. Amazon.com (NASDAQ:AMZN), which has exited the Chinese market, is also expected to benefit from this trend.
Fiduciary Trust Company has stated that they are “significantly underweight stocks with China exposure” due to concerns about investor protections, China’s economic competition with the West, and the fact that China’s growth has slowed down compared to the past.
Other investment managers are diversifying their assets away from mega-cap tech stocks with substantial China exposure. Winslow Capital Management, which holds both Apple and Tesla in its portfolio, has reduced its exposure to these stocks relative to their size in the Russell 1000 Growth Index. They see China’s move to restrict the use of Apple products in state-owned companies as a sign that things could become more challenging for companies with significant China revenue.
A recent Bank of America global fund manager survey reflects broader concerns about China’s struggling economy, with investors shifting their equity allocations away from China and towards the U.S. The survey indicates that the “avoid China” theme has become a major conviction among surveyed investors. Allocation to U.S. equities has increased while emerging markets asset allocation has declined significantly.
Several mega-cap technology companies, including Apple, Tesla, Nvidia, Broadcom (NASDAQ:AVGO), and Qualcomm (NASDAQ:QCOM), have substantial revenue exposure to China. For example, Apple received 19% of its revenue from China last year, while Tesla and Nvidia generated over 20% of their annual revenue from the Chinese market. Broadcom’s China revenue exposure is 35%, and Qualcomm’s revenue from China exceeds 60%.
Fiduciary Trust Company warns that the potential impact on revenues or the need to reconfigure supply chains in the face of escalating tensions could weigh on the stocks of companies with significant China exposure. These concerns are casting a shadow over these companies, and investors are adjusting their portfolios accordingly.
Featured Image: Freepik @ DCStudio
