Veteran investment strategist David Roche said it’s “too risky” to own Chinese technology stocks given an ongoing regulatory crackdown in China and the geopolitical rivalry between Washington and Beijing.
“There are a lot of issues to do with politics. There are a lot of issues to do with the availability of technology, which personally I don’t want to take those risks in a portfolio at the present time,” Roche, president and global strategist at Independent Strategy, told CNBC’s “Squawk Box Asia” on Monday.
U.S.-China relations were already rocky as President Joe Biden took office, and some observers have warned that tensions between the two countries could worsen.
Biden has kept many restrictions on Chinese tech companies imposed by his predecessor Donald Trump. That includes export controls on Chinese telecommunications equipment maker Huawei and top chipmaker Semiconductor Manufacturing International Corp.
Tensions with the U.S. and its allies mean that China “will have a problem in accessing the high end of things like robots and the high end, in particular, of semiconductors,” said Roche.
At the same time, Chinese regulators have stepped up scrutiny on some of the country’s largest tech firms — including e-commerce giant Alibaba and ride-hailing app Didi. Roche said the crackdown adds uncertainty and makes companies, such as those in the financial technology space, less profitable and less attractive to investors.
The investment case for Taiwan
While China aims to become self-reliant in tech — particularly semiconductors — it will take years before the country can catch up to industry leaders such as Taiwan, said the veteran strategist.
Roche said Taiwan produces 70% of all “really high-end” chips in the world, while China only accounts for about 5% of the global share. That’s one factor underpinning the investment case for Taiwan on a two- to three-year horizon, he added.
“The big asset of Taiwan is … its research and technological ability to produce high-end chips,” the strategist said.
“So essentially, Taiwan is the golden egg for China. It is also the golden egg for the United States because it supplies the United States, which has lost its leadership in this section. So, that puts Taiwan in a very special place,” added Roche.
But he warned that Taiwan is geopolitically very vulnerable.
The ruling Chinese Communist Party in Beijing has never controlled Taiwan, but it claims the self-ruled, democratic island as a renegade province that must be one day reunited with the mainland. The CCP doesn’t rule out the use of force to take over Taiwan.
Chinese President Xi Jinping last week pledged “complete reunification” with Taiwan in a speech to mark the Communist Party’s 100th year — which drew a strong rebuke from Taiwan.
Roche said a move by Xi on Taiwan is “most definitely on the cards for the next five years, but it is probably not on the cards for the next two to three years”.