Are Chinese Tech Stocks At A 'Serious Risk' Amid Escalating Trade War? 'Delisting Is Moving Up In The List Of Retaliatory Options,' Says Analyst

China’s tech stocks are grappling with potential challenges that could have a more significant impact than President Donald Trump‘s tariffs.

What Happened: The Hang Seng Tech Index, which has lost over $350 billion in market value since March, is now under the shadow of geopolitical tensions and potential U.S. sanctions. Bush Chu, an investment manager at Aberdeen Investments, stated that these U.S. measures, such as restrictions on financial holdings or additional sanctions, represent a “serious risk,” reported Fortune.

There are also rumors about the potential forced delisting of Chinese stocks from U.S. exchanges, along with possible restrictions on access to technology. Chu warns that these measures could trigger a “sharp selloff” of heavily foreign-owned Chinese tech stocks.

TD Cowen analyst Jaret Seiberg cautioned, "Given how high Trump already has pushed up tariffs against China, we believe delisting is moving up in the list of retaliatory options."

Chinese e-commerce firms have been the worst impacted by the U.S. raising tariffs on small parcels, previously exempt from duties. American depositary receipts of PDD Holdings Inc. PDD have tumbled nearly 16% over the last week, while ADRs of Alibaba Group Holding Ltd. BABA are down 11% during the same period.

Most of China’s tech sector earns revenue and profits domestically, so direct tariff impacts are minimal, except in online shopping. However, rising tensions could lead to non-tariff actions. The U.S. Department of Defense has already blacklisted major Chinese firms like Tencent Holdings Ltd. TCEHY.

Why It Matters: Earlier this year, China’s tech stocks surged due to excitement around DeepSeek's success in AI. However, investor focus has shifted back to U.S. efforts to restrict China's access to advanced technology as trade tensions worsen.

The options traders are nervous, as evidenced by the cost of hedging against declines in Chinese tech giants like Tencent and Alibaba remaining near multi-year highs.

As reported earlier this month, Alibaba’s shares have plummeted 32.50% since mid-March due to escalating trade tensions. Furthermore, shares of major U.S. technology companies, including Apple Inc. AAPL, Meta Platforms META and Nvidia NVDA have been trading lower following a broader market pullback after a sharp rally.

While the Hang Seng has regained over 10% during the past four trading sessions, investors may still be skeptical. According to analyst Chu, "Whether investors want to get into China stocks right now just to capture the AI opportunities … they may pause a bit for now given the great uncertainties, and they might re-enter if they obtain more clarity on the tariff, on the global economy."