Time To Rethink Your Stock Portfolio? Biden’s Executive Order Limits US Investments
Written by
John Csiszar
Edited by
Chris Cluff
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This month, President Joe Biden issued an executive order restricting certain U.S. high-tech investments into China. The stated impetus behind the order was to prevent the Chinese from funneling investment money into military technology and weaponry.
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But whatever geopolitical reasons the Biden Administration had for making the move, there are two main questions for average Americans: Will this affect the prices of things like electronics, and will this potentially harm investor portfolios?
Here’s a look at the specifics of the order and how it may or may not affect your personal finances.
What the Executive Order Says
Biden’s executive order doesn’t prevent individual investors from buying Chinese stocks or other investments. Rather, it restricts venture capital firms, private equity and certain partnerships from investing and/or sharing technology with China. Specific transactions that may be restricted include:
- Mergers and acquisitions, venture capital or private equity investments that result in the acquisition of equity
- Greenfield investments
- Joint ventures
- Some debt financing transactions
Not all areas are off limits, however. Currently, the executive order applies only to transactions in the semiconductor, quantum computing and artificial intelligence industries.
Types of transactions that are specifically still allowed under the executive order include:
- University-to-university research collaborations
- Stock research
- Contracts to buy raw materials
- Global custody
- Intellectual property licensing
- Bank lending and payment processing
- Underwriting
- Debt rating
- Prime brokerage
How Could This Affect Individual Investors?
In the broadest sense, this won’t affect individual investors at all. The executive order applies only to institutions and professional investors like venture capital funds, not individuals buying or selling Chinese stocks or ETFs. In fact, the executive order isn’t even officially yet in place, as the government is still accepting written comments about it until Sept. 28.
But as sentiment, expectation and emotion often drive stock prices even before events may actually occur, the fact that this executive order is already in the public sphere means it could indeed affect Chinese stock prices.
Fear of what this order could mean already has been reflected in the main Chinese stock market, the Shanghai Stock Exchange Composite Index, which has fallen about 5% since the beginning of August. While not a “crash,” or even a correction, it’s an indication of what may happen if the executive order gets teeth — or perhaps gets even more far-reaching, as some politicians are calling for.
At the present time, however, the small selloff in Chinese stocks seems to be more a reaction to the uncertainty and negative press of the announcement, rather than any wholesale belief that Chinese companies will collapse. As currently laid out, the executive order seems as if it will cause more problems for U.S. venture capital firms and investment houses looking to do business with China rather than any specific individual stocks.
How Could This Affect American Consumers?
One way that Americans might be affected by the order is if the cost of Chinese products rises. The restrictions primarily target technology, so a shortage of financing in this industry could result in product shortages or possibly even retaliatory pricing strategies from the Chinese.
Either of these could potentially translate to higher prices for various technological products for Americans, such as electronics. However, it’s impossible to specify exactly what the ramifications of the Biden Administration’s actions will be in terms of the pricing of Chinese goods.
How Should You Respond?
Generally speaking, it’s not a great idea to alter your long-term investment strategy over geopolitical headlines. While there may be some pressure on Chinese shares over the short run, if you’re a believer in the long-term prospects of Chinese investments as a whole or specific Chinese companies, then you probably should stick with your investment plan.
However, it always pays to be vigilant about your investments, so keep an eye on how things are developing and make adjustments as necessary. Depending on your own personal interpretation of events, a selloff might actually offer a buying opportunity. But, if you’re concerned about how this will all play out, you might consider taking some money off the table, at least over the short run. Always evaluate your investments in light of your personal financial objectives and your tolerance for risk.
As a consumer, there’s not much you can do to control the pricing of various goods you may purchase. However, knowing what’s going on with Biden’s executive order could prepare you for price increases on certain Chinese goods — or encourage you to look at products sold by other countries instead.
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