What historical precedents exist for similar US-China tech deal reviews, and what were their market consequences?

Historical precedents

1. 2019‑2020 “Huawei/ZTE” export‑control wave – When the U.S. added Huawei and later ZTE to the Commerce Department’s Entity List, the first large‑scale tech‑deal review of a Chinese firm, the market punished not only the targeted companies but also the broader semiconductor sector. Nvidia, AMD and other chip makers saw 8‑12 % sell‑offs in the weeks after the announcements, while Chinese ADRs of the affected firms fell 20‑30 % on the Shanghai and Hong Kong exchanges. The sell‑off spilled into broader “China‑exposed” equities and into the US‑China trade‑risk premium, widening the bid‑ask spreads on NVDA and AMD options.

2. 2020‑2021 “SMIC/Qualcomm” licensing reviews – The Department of Commerce’s “Foreign Investment Risk Review” (FIRR) of SMIC’s request for U.S.‑origin equipment triggered a similar pattern. When the review was announced, Nvidia and AMD shares each slipped ~5 % on the day, while the broader “US‑China chip” index (e.g., MSCI China Information Technology) recorded a 7 % decline over the next two weeks. The market reaction was amplified by the “technology‑war” narrative, prompting a short‑term rotation out of high‑growth, China‑linked semiconductor names into defensive sectors.

Market consequences & trading implications

Both episodes produced a sharp, short‑lived downside in the affected stocks (NVDA, AMD) and a broader sector‑wide volatility spike (increased VIX, widened implied‑vol spreads). The price action was largely driven by regulatory‑risk premia rather than fundamentals, so the sell‑off was overshoot‑prone. Technically, the 2020‑2021 review left NVDA and AMD in a downward‑channel pattern with the 20‑day SMA acting as a dynamic resistance; the break below that SMA historically preceded a 10‑15 % correction before a rebound once the review concluded.

Actionable take‑aways

• Stay on the sidelines or hedge until the Department of Commerce clarifies the “mechanics.” A protective put (or a delta‑neutral spread) on NVDA can lock in the current support (~$420) and limit exposure to a potential 8‑12 % dip if the review drags on.
• Monitor related sentiment cues: any mention of “entity‑list” or “foreign‑investment‑risk” in the next 48 h tends to trigger a 10‑bp sell‑off in the semiconductor index, offering a short‑entry point with a tight stop just above the 20‑day SMA.
• Long‑bias post‑clarification: once the legality and licensing framework are announced, the sector historically rebounds 12‑18 % within 4‑6 weeks, as seen after the 2020 SMIC decision. Position sizing should therefore be modest now, with a view to add on the dip if the regulatory outcome is favorable.