A potential U.S. ban on investment in Chinese tech could hurt these sectors

BEIJING — A ban on U.S. investment in Chinese tech could drive up market volatility — but some sectors may escape untouched, Bank of America analysts said.

The White House is reportedly considering an executive order to ban U.S. investment into high-end Chinese tech, such as artificial intelligence, quantum computing, 5G and advanced semiconductors, according to a Politico report last week.

It’s unclear whether or when such a rule might take effect. The report indicated ongoing internal debate within the U.S. government.

“If there were a strict investment ban on US investors, it could create a significant supply of shares over the grace period and hence potential large volatility in the near term,” Bank of America’s Hong Kong-based research analysts said in a note Tuesday. “Potential long-term impact is less clear.”

“Though AI is quite prevalent in today’s online world, companies that don’t have a large business in external AI solutions [will] likely see a lower chance [of] being targeted by the U.S. side,” the analysts said.

“Online travel companies, pureplay game and music companies, online verticals in auto and real estate, niche eCommerce specialties, and logistics-focus eCommerce companies are some of the examples,” the Bank of America report said.

The analysts did not name specific stocks.

Chinese stocks have recently tried to rebound after a plunge in the last two years.

The country ended its stringent zero-Covid policy in December. In the second half of last year, the U.S. and China also reached an audit deal that significantly lowered the risk Chinese companies would have to delist from U.S. stock exchanges.

Some of the U.S.-listed Chinese stocks with the largest U.S. institutional investor ownership on a percentage basis included KFC operator Yum China, livestreaming company Joyy and pharmaceutical company Zai Lab, according to a Jan. 25 Morgan Stanley report.

Semiconductor industry company Daqo New Energy had nearly 27% U.S. institutional ownership, Morgan Stanley said.

The data showed Alibaba had the most U.S. institutional ownership by dollar value, but it only accounted for 8.2% of the stock.

In a separate report Monday, Morgan Stanley equity strategist Laura Wang pointed out the Biden administration has focused on targeting tech with ties to the Chinese military.

She noted signs of stabilization in the U.S.-China relationship, including U.S. Secretary of State Antony Blinken’s planned visit to Beijing in the coming days and the potential for Chinese President Xi Jinping to visit the U.S. during the Asia-Pacific Economic Cooperation Leaders’ Summit — set to be held in San Francisco in November.

The White House and China’s Ministry of Foreign Affairs did not immediately respond to a request for comment on the Politico report.

— CNBC’s Michael Bloom contributed to this report.