Investing Amid U.S.-China Tech Rivalry: Navigating AI Market Volatility

The U.S. economy significantly influences global financial markets due to its substantial share of global GDP, foreign direct investment, and stock market capitalization. In the U.S., presidents often sign executive orders soon after taking office, directing federal agencies with actions that carry the force of law if constitutional.

According to USAFacts, since 1969, U.S. presidents have averaged 269 executive orders, with two-term leaders issuing 328 and single-term presidents 216. Jimmy Carter averaged the most annually at 80, while Barack Obama averaged the fewest at 35. On January 20, 2025, the day President Trump took office for his second term, he signed 26 executive orders, compared to just one on his first day in 2017.

Presidential executive orders can directly impact various sectors by altering regulations and policies, thereby affecting both domestic and international markets. For instance, executive actions on trade policies can lead to changes in global trade dynamics, influencing investor decisions worldwide.

Donald Trump’s first week as U.S. president concluded with executive orders promoting science and technology, including a $500 billion AI infrastructure investment and the creation of a digital assets advisory council.

Technological Advancements and U.S.-China Rivalry

Technological advancements, like AI and quantum computing, have sustained the U.S. as the world’s leading economy. Over the past century, technology has driven efficiency and productivity, contributing to half of its economic growth. To maintain its status and achieve the goal of “the world's AI runs on American rails,” as officials stated, the U.S. is imposing stricter export restrictions on advanced computer chips and AI technology to numerous countries beyond its usual adversaries.

The U.S.-China tech rivalry remains a key global issue, with China rapidly advancing military technology and striving to catch up in AI with OpenAI and other leaders; launched in 2023, DeepSeek released a model reportedly developed for a fraction of the cost of its rivals, like ChatGPT.

DeepSeek’s capabilities are reportedly on par with leading models and being praised for tackling complex reasoning tasks, especially in mathematics and coding. Its cost-efficient development has raised concerns over whether the massive investments made by U.S. companies in AI infrastructure are justified.

This technological leap raised questions about America's future leadership in the AI space. As a result, shares of tech giants, including Nvidia, and Microsoft fell on the news on Monday. The launch also comes ahead of OpenAI's plan to introduce a public benefits company with listed shares to raise capital for further growth

Market Reaction and Potential U.S. Policy Responses

The introduction of China's DeepSeek model brings new competition to the market, pushing companies to be more innovative to stay ahead while increasing investment volatility in AI and tech due to uncertainties. Additionally, China's advancements in technology to claim dominance in the AI space could influence the U.S. to introduce stricter trade restrictions.

Nvidia praised DeepSeek’s R1 model as “an excellent AI advancement,” despite its stock dropping 17%, calling it a showcase of export-compliant Test Time Scaling. According to CNBC, Nvidia views DeepSeek’s breakthrough as increasing demand for its GPUs, with a spokesperson adding that "Inference requires significant numbers of NVIDIA GPUs and high-performance networking."

In an interesting twist, Nvidia stated DeepSeek used export-compliant GPUs, countering claims by Scale AI CEO Alexandr Wang. DeepSeek confirmed using “special versions” of Nvidia GPUs designed for China.

The rise of China's DeepSeek and its potential to disrupt the global AI market will likely have ripple effects on other economies. Nations with strong ties to U.S. technology firms may face supply chain disruptions if stricter trade restrictions are implemented.

Furthermore, countries with weaker AI infrastructure may seek partnerships with China, altering the balance of technological influence and trade dynamics. This shift could challenge traditional alliances and spark new collaborations in the tech sector across Asia, the Middle East, and Africa.

Investment Strategies Amid Global Market Volatility

"Tech is the future" is a phrase many of us hear, which explains why so many invest in tech. However, investors should closely monitor trade restrictions, especially in sectors like AI and advanced technology, where geopolitical tensions significantly influence market dynamics. Stricter U.S. export controls on advanced chips and AI tools, particularly in response to China’s technological advancements, could disrupt global supply chains, alter competitive landscapes, and affect companies reliant on international trade.

Emerging competitors like China’s DeepSeek may intensify market volatility, with tech firms facing increased pressure to innovate while navigating regulatory constraints. Investors should evaluate the potential impact of executive orders, geopolitical rivalry, and legal challenges on affected industries to manage risk and identify opportunities amid shifting global policies. The U.S. government may respond by increasing its investment in domestic AI and tech sectors, forging stronger public-private partnerships, and expanding research funding for emerging technologies like quantum computing. Legislative efforts to strengthen export control measures and protect intellectual property are also likely to intensify.

Buying the dip could also be a smart move during market volatility, especially in tech, where geopolitical tensions drive fluctuations. Focusing on long-term growth in areas like AI and quantum computing can lead to gains as the market recovers.

Global Economic Implications

Diversifying into different markets, themes, and economies, as well as assets like government bonds, offers several benefits for investors. Additionally, passive income from dividend-growing tech stocks like Microsoft and Apple can add steady cash flow, balancing volatility and supporting long-term growth in a diversified portfolio. EasyEquities also allows investors to transfer funds between offshore accounts, such as from the U.S. to AUD, GBP and EUR.

This strategy helps spread risk across various sectors, regions, and asset classes, reducing the impact of poor performance in any one area. Different markets and economies can perform well at different times due to varying economic cycles, geopolitical factors, or fiscal policies, which can provide smoother overall returns. For example, investing in both developed and emerging markets can balance the higher growth potential of the latter with the stability of the former.

Balancing Portfolios with Bonds and Equities

Incorporating government bonds into a portfolio adds another layer of stability, as these are typically low-risk investments that tend to perform well when stock markets are volatile. Government bonds provide regular income, preserve capital, and have the potential to act as a hedge against market downturns.

The combination of equities, government bonds, and other asset types can result in more stable long-term returns and reduce the likelihood of significant losses, helping investors grow and protect their wealth while weathering financial storms and taking advantage of growth opportunities in diverse markets.