US-China tech rivalry adds to headaches for stock investors

China's heated rivalry with the US over tech supremacy is adding fresh pain points to the world's second-largest stock market, as the Biden administration steps up efforts to reduce economic reliance on the Asian nation.

From biotech to electric vehicles, shares of China's key manufacturers have seen heavy selling recently as US initiatives to secure domestic supply chains and solidify its industrial superiority raised uncertainties for Chinese firms. The MSCI China Index has fallen more than 7% this month, versus a 2.5% drop in the global gauge.

Investors also worry that rising tension over Beijing's stance toward Russia and Taiwan may accelerate the economic decoupling. President Xi Jinping's meeting with his Russian counterpart last week has been closely watched by traders for any gesture that may provide basis for US sanctions.


"China's relationship with the US will remain challenging in 2022 and beyond with geopolitical risks remaining high as both economies increasing see each other as competitors," said Zhikai Chen, head of Asian and global emerging market equities at BNP Paribas Asset Management. "We are focused on the defensive and policy beneficiary names and avoid those subject to higher geopolitical risk."

The latest developments are further dampening sentiment in a market reeling from stringent Covid restrictions, a weakening economy and a property market slump. Chinese stock gauges are among the worst-performing major benchmarks this year.