Geopolitical tensions with the U.S. could ‘supercharge’ China’s innovation, JPMorgan says

beijingwalker · Oct 7, 2022

Geopolitical tensions with the U.S. could ‘supercharge’ China’s innovation, JPMorgan says

PUBLISHED THU, OCT 6 20229:08 PM EDT
Abigail Ng @ABIGAILNGWY

KEY POINTS

Tensions between Beijing and Washington have pushed China to be more self sufficient, said Alexander Treves of JPMorgan Asset Management.
China has stepped up investment into its chip industry in a bid to be self-reliant in crucial technology needed for electric vehicles, smartphones and more.
Separately, in the electric vehicle space in China, Treves said JPMorgan looks for companies with the most pricing power — usually the battery makers rather than specific auto brands.

U.S.-China tensions have pushed Beijing to be more self-sufficient, and that could be a good thing for innovators in China, according to an investment specialist at JPMorgan Asset Management.

“One of the unintended consequences of this push and shove between the U.S. and China is that it has just underscored this determination in China to become self-sufficient in a whole variety of industries,” Alexander Treves told CNBC’s “Street Signs Asia” on Thursday.

In the mid-1990s, Chinese companies were mostly mass market manufacturers of “commoditized goods,” he added.

“Now, you’ve got genuine tech innovators,” he said. “I think that the geopolitical tension you’re talking about will just actually supercharge that — because China needs to do these things itself, and they will carry on with progress in that area.”

China has stepped up investment into its local chip industry in a bid to be self-reliant when it comes to crucial technology for various products — from electric vehicles to mobile phones. But it still relies heavily on foreign technology.

Treves said investors should look for companies that will succeed in spite of geopolitical tensions.
“Geopolitics are here to stay, so get used to it, just accept that,” he told CNBC.

JPMorgan bullish on China tech

JPMorgan has been investing in Chinse tech companies this year, the investment specialist said.

Some of the firms have “world-leading business models” and a huge addressable market, while valuations are better than they used to be, he added.

Additionally, profitability has improved because companies are spending less and being less aggressive against each other — partly because of the regulations, Treves said.
“We’ve been adding to the Chinese internet companies this year for precisely that reason,” he said.

Separately, in the electric vehicle space in China, Treves said JPMorgan looks for companies with the most pricing power — usually the battery makers rather than specific auto brands.

“Then you don’t need to make a bet on which brand will succeed, on … whether someone will be buying this brand or that brand,” he said.

Another fund manager, Edmund Harriss, is head of Asian and emerging market investments at Guinness Asset Management, is also optimistic about China’s EV sector, CNBC Pro reported.

He named two stocks to play the EV boom, and said companies in the electric vehicle sector, factory automation, and sustainable energy field would likely outperform their global peers over the next five to 20 years.