HONG KONG (BLOOMBERG) - An escalating face-off between the world's two largest economies has caught Asian technology shares in the middle, hammering those with the most at stake.
The MSCI AC Asia Pacific Infotech Index hit the lowest since July 2017 on Friday (Oct 5) as investors digested a Bloomberg News report that Beijing had hacked American computer networks using a microchip built by its spies. The story came the same day Vice-President Mike Pence criticised China across economic, commercial and diplomatic fronts in a keynote speech.
While the two nations were already embroiled in a months-long tariff-raising trade confrontation, the latest developments raise the broader question of the place of China - and its Asian suppliers - in the supply chain that feeds through to the US consumer. Chinese computer maker Lenovo Group slumped the most in almost a decade on Friday.
Benchmark stock indexes fell across Asia. Taiwan's Taiex index fell 2.1 per cent as of 12pm in Taipei. The broader MSCI Asia Pacific Index is heading for its worst week since March.
ZTE Corp, a Chinese communications-gear maker that's been hit by American sanctions, fell 11 per cent. Win Semiconductors Corp lost 8.3 per cent.
Walsin Technology Corp dropped 9.4 per cent while Realtek Semiconductor Corp was down 6.7 per cent.
"Electronics produced in China may be viewed unsafe due to this news, and tech shares are falling in general because of that," Ray K W Kwok, an analyst at CGS-CIMB Securities Hong Kong Ltd., said of the Bloomberg story.
Beijing-based Lenovo, one of the world's top PC makers, didn't immediately reply to calls and emails seeking comment. Chinese markets and offices are closed for a week-long holiday.
Semiconductor stocks around the world had already been under persistent pressure this year on concerns the cyclical industry has peaked amid flagging smartphone sales. Taiwan Semiconductor Manufacturing Co was down about 1.8 per cent in Taipei.
Lenovo could be particularly vulnerable because it generated more than 30 per cent of its revenue from North America and 75 per cent from outside China in the most recent fiscal year.
It has built up its foreign sales through acquisitions, particularly from International Business Machines Corp. The company bought IBM's PC business in 2005, including the ThinkPad notebook brand, and then agreed to buy its low-end server business in 2014. It also acquired Motorola Mobility from Google Inc, now known as Alphabet, in 2014 in a US$2.9 billion deal to bolster its smartphone business.
"The hack report has nothing to do with Lenovo, but since Lenovo sells PCs and severs there, some investors may have concerns on a sentiment level," said Dennis Guan, a senior analyst at eFusion Capital. "It's just too hard to predict how things will develop."
Losses in Asia followed declines in the US on Thursday. The Nasdaq 100 Index saw its worst one-day drop since June, as Amazon.com and Apple - companies named as being affected by the China hack retreated at least 1.8 per cent. Nasdaq futures were little-changed in Asian trading on Friday.