Why the US-China tech war spells bigger trouble for investors than the conflict over trade

With many investors overweight on the sector, which has fuelled the decade-long stock market rally, Trump’s focus on technology in his battle with China could hit portfolios hard. However, a sell-off may be what is needed to ease tensions

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A Nasdaq employee monitors market activity on September 4, 2018, in New York. Amazon became the second publicly traded company to be worth US$1 trillion, hot on the heels of Apple. However, investors’ heavy exposure to the tech sector might pose problems as the US-China conflict intensifies. Photo: AP

Published: 9:30pm, 30 May 2019Updated: 10:51pm, 30 May 2019

Since the trade war erupted last summer, financial markets have suffered frequent bouts of turmoil, often amplified by other threats, such as the slowdown in global growth and, up until the end of last year, the prospect of an excessive tightening of US monetary policy.

Yet, every time markets have tumbled, asset prices have quickly recovered. This is partly because investors have grown accustomed to the erratic and impulsive behaviour of US President Donald Trump, who has blown hot and cold on the prospect of a deal with Beijing, fuelling speculation that an agreement will eventually be reached.

Another reason the sell-offs have been short-lived is because the tariffs themselves have so far had a limited impact on global growth, particularly in the US which is not an export-dependent economy.

However, the recent shift in the focus of the conflict from trade to technology marks a new, more perilous phase of the confrontation which raises the stakes for markets significantly.

The fast-growing tech sector has powered the decade-long rally in equities. While the benchmark S&P 500 index has surged 215 per cent over the past decade, the gauge’s information technology index has skyrocketed over 365 per cent.

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