In late 2024, Texas Governor Abbot wrote a letter to his Chairmen and Directors indicating his concern over security threats from the Chinese Communist Party. Abbott says, “As Chinese aggression against the United States and its allies seems likely to continue, the financial risk associated with holding investments in China will also rise.” Since the new year, 15 additional states sent a letter to state pension fund fiduciaries, encouraging them to divest from China.
Which States are choosing to divest?
State offices from Alabama, Alaska, Arizona, Arkansas, Indiana, Kansas, Louisiana, Mississippi, Missouri, Nebraska, North Carolina, Oklahoma, Pennsylvania, South Carolina, and Wyoming all seem to agree that “investments in China are no longer prudent investments.” The concern from each of these states stems from a great distrust in China. Many believe that financial audits of Chinese companies and the government are unreliable, which can interfere with the Chinese stock and bonds market. States also are concerned about the Chinese and Taiwanese tensions, and the risk of China invading Taiwan in the near future concerns investors.
This concern about Chinese action is not new. In 2021, Ron DeSantis, the Governor of Florida, warned of various threats posed by China. Florida consequently implemented safeguards for the state and started to divest. Florida in 2021 and Texas in 2024 plan to enhance security measures to protect investors in the United States as there are increasing incidents of Chinese spies being arrested in the United States.
Multiple federal warnings were issued in 2024 by the National Security Agency and the Cybersecurity and Infrastructure Security Agency over growing concerns about China’s spying on the US.
What does this mean for the average investor?
While it is impossible to tell precisely what will happen in the future, the average investor can expect to see a few things as tensions rise. Increased tensions create uncertainty and fear in the market, generally leading to increased volatility. Many investors may be more risk-averse and shift their portfolios towards safer assets. Investors should also be careful investing in industries sensitive to national security, such as technology, AI, telecommunications, and defense, as there may be regulatory hurdles in the near future. Cybersecurity protocols impact profitability as companies must invest more in security to attract investors. That investment, however, takes dollars away from other parts of the business, which could slow growth and innovation declines.
While these are potential impacts, the actual effects will depend on the actions taken by the government and the extent of the threat of China. To stay on top of all financial news, be sure to check the Due.com blog.
Featured Image Credit: skigh_tv; Pexels: Thank You!
