The Breaking of the Internet

ATEC was too myopic.

Whilst we previously believed the main reason for the clampdown on the likes of Ant Financial, DiDi and so on was just to reel them in and force the titans to realign their interests with Beijing, the picture becomes a lot more sinister and worrying if we zoom back.

For there appears to be a larger issue of data security and sovereignty at play. In many ways, this was bound to happen, given the tension that had already been built up since Trump came to power. However, unlike during the trade war of 2018, the implications are still unknown at this point, should a data sovereignty war fragment the Internet. Hence a risk to the markets.

For instance — one must surely ask how the Biden Administration will respond to China’s current move to ring-fence its data? Will the U.S. reciprocate to the same extent? How will it then escalate? Viewed from this context, the ‘recalling’ of Chinese companies listed on the U.S. stock exchanges then appears to be just an initial step in this scenario.

There are still numerous companies operating in China and Hong Kong. Take Apple. If a Chinese national owns an iPhone and resides in Shanghai or Hong Kong, who owns the right to the data on their phone?

Or a Tesla customer for that matter? Also, what happens to say Tencent’s 40% stake in Epic Games, the maker of Fortnite? There is tonnes of data collected from players worldwide. What then?

What then happens when other countries are coerced to join in response?

What happens if MSCI decides to reconsider China’s weighting in its global country benchmarks for its fund management clients, in view of China moving back to its Socialist roots and other national security concerns?

There are so many multiple angles to consider, most of which give us a migraine when we come round to thinking of possible outcomes. Where is Doctor Strange when you need him?

At this point, ATEC is clueless about whether or when this possibility becomes probable. We do however think it suffice to say that a triggering of this scenario imminently risks putting global risk markets… well… at significant risk.