US-China tensions could 'boost' Chinese innovation: JPMorgan

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The employee works in the production of semiconductor wafers at the Cuoda Group plant of Jiangsu Azure Corporation. China’s electric cars, smartphones and more. has stepped up investment in the chip industry to become self-sufficient in the critical technology needed for

VCG | Visual China Group | Getty Images

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

“One of the unintended consequences of this push between the US and China is that it has just highlighted China’s desire to become more self-sufficient in various areas,” Alexander Treves told CNBC’s “Street Signs Asia” on Thursday. .

By the mid-1990s, Chinese companies were largely mass-market producers of “commodities,” he added.

“Now you have real technology innovators,” he said. “I think the geopolitical tensions that you’re talking about really exacerbate that — because China has to do it themselves, and they’re going to continue to make progress in that area.”

China has stepped up investment in its domestic chip industry to build self-reliance on the critical technology for products ranging from electric vehicles to mobile phones. But it still relies on foreign technology.

Treves said investors should look for companies that will succeed despite geopolitical tensions.

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

JPMorgan grew on Chinese technology

JPMorgan is investing in Chinese technology companies this year, an investment specialist said.

Some firms have “world-leading business models” and large addressable markets, and valuations are better than ever, he added.

At the same time, profitability has improved as companies spend less and become less aggressive with each other — partly due to regulations, Treves said.

“That’s why we’ve included Chinese Internet companies this year,” he said.

Also, in the electric vehicle space in China, Treves JPMorgan is looking for companies with the highest price power — usually battery makers rather than specific car brands.

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

Another fund manager, Edmund Harris, 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, factory automation and sustainable energy sectors will outperform their global peers over the next five to 20 years.

— CNBC’s Arjun Harpal contributed to this report.

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