US-China tensions might ‘cost’ China’s innovation: JPMorgan

A worker works on the semiconductor wafer production line at a Cuoda Group factory of Jiangsu Azure Corporation. China has increased investment in its chip industry to become self-sufficient in critical technology needed for electric vehicles, smartphones and more.

vcg | Visual China Group | Getty Images

Tensions between the US and China have pushed Beijing to become 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 US-China back-and-forth is that it has just underscored this determination in China to become self-sufficient across a whole range of industries,” Alexander Treves told CNBC’s Street Signs Asia on Thursday .

In the mid-1990s, Chinese companies were mainly mass-market producers of “commodity goods,” he added.

“Now you have real technical innovators,” he said. “I think the geopolitical tensions you’re talking about will add to that — because China has to do these things on its own, and they’re going to keep making strides in that area.”

China has increased investment in its local chip industry to be self-sufficient when it comes to crucial technologies 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 thrive despite geopolitical tensions.

“Geopolitics is here to stay, so get used to it, just accept that,” he told CNBC.

JPMorgan is bullish on China tech

JPMorgan has invested in Chinese 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.

In addition, profitability has improved because companies are spending less and acting less aggressively against each other — in part because of the regulations, Treves said.

“For this very reason, we have ramped up Chinese internet companies this year,” he said.

Separately, in China’s electric vehicle space, Treves said JPMorgan is looking for companies with the greatest pricing power — typically battery makers rather than specific car brands.

“Then you don’t have to bet on which brand will be successful, whether someone will buy this brand or that brand,” he said.

Another fund manager, Edmund Harriss, head of Asia and emerging markets investments at Guinness Asset Management, is also bullish on China’s electric vehicle sector, CNBC Pro reported.

He named two stocks to capitalize on the EV boom, saying companies in electric vehicles, factory automation and sustainable energy are likely to outperform their global peers over the next five to 20 years.

— CNBC’s Arjun Kharpal contributed to this report.

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