Amid a debate about stock market investors underestimating the risks from the coronavirus-led shutdown of the global economy, China risk is reemerging. How the U.S. responds may determine the direction of the stock market.

The U.S. has long contended that Chinese telecommunications-equipment maker Huawei Technologies is a risk to national security. It has been contended that the Chinese can spy on the U.S. and other countries through back doors built into Huawei technology.

There is a report that the U.S. is amending an export rule to block the sale of certain semiconductors to Huawei. This is in addition to prior restrictions on exports of U.S. technology to Huawei.

There is a swift response from China in a tweet by Hu Xijin, the influential editor of the Global Times, which has close ties to the Chinese government. He said China may declare Apple AAPL, -2.02%, Qualcomm QCOM and Cisco CSCO as unreliable entities and stop buying planes from Boeing (BA).

Earlier this week, President Trump said “right now I just don’t want to speak to [Chinese President Xi Jinping],” adding he’s “very disappointed” with China and its response to the coronavirus pandemic. Trump said he’s “looking at” Chinese companies that trade on U.S. stock exchanges but don’t follow U.S. accounting rules.

How will this play out? Let’s examine with the help of a chart.


Please click here for an annotated chart of Apple, Qualcomm, Cisco and Boeing.

Note the following:

• The Dow Jones Industrial Average DJIA dropped after the report of restrictions on semiconductor sales to Huawei. The stock market took another leg down after the tweet from Hu Xijin.

• The chart shows that after the coronavirus-related dip, Apple stock approached prior highs.

• The chart shows that Qualcomm and Cisco rallied from the lows but nowhere near their prior highs.

• The chart shows a big drop in Boeing stock. Boeing had problems prior to the coronavirus, and now Boeing’s customers have more planes than they need for the time being.

• In the previous trade war between the U.S. and China, Apple CEO Tim Cook was successful in keeping both President Trump and the Chinese government happy. The big risk is that Cook may not be able to pull off that feat again.

• A lot of money is tied to the S&P 500 Index SPX. Apple carries a heavy weighting in the index, so if Apple is hit more than the other three stocks named in the tweet, the stock market will suffer as a result of poor sentiment….Read more at MarketWatch.

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