Just a few days ago, markets were encouraged by the rebound in Chinese stocks in 2024, after a three-year losing streak. However, a cloud of uncertainty looms over Chinese stocks and ETFs with exposure to them.

The Biden administration's call to blacklist two more Chinese tech giants—Tencent Holdings and Contemporary Amperex Technology (CATL)—has sent shockwaves through global markets, as investors anticipate its impact on the already precarious U.S.-China economic ties.

Tencent, the world's largest gaming publisher, and CATL saw their shares plunge on Jan. 6.

Also Read: Tesla Supplier CATL, Riot Games Owner Tencent Plan Legal Action Over Pentagon Blacklist, Deny Military Ties

Notable ETFs feeling the heat of being on high alert include iShares MSCI China ETF (NASDAQ:MCHI), which allocates the biggest chunk of its holdings (15.40%) to Tencent. The net asset value inched down 1% on Jan. 7.

SPDR S&P China ETF (NYSE:GXC): Known for its diversified holdings, this fund also allocates 11.42%, its largest for a single security, to Tencent. Other major Chinese firms like Alibaba (NYSE:BABA) and Meituan also hold key spots in the portfolio.

Invesco China Technology ETF (NYSE:CQQQ), which dedicates 100% of its assets to Chinese technology stocks, is particularly sensitive to geopolitical developments. Moreover, Tencent takes up 10.76% of the total assets.

Additionally, ETFs with heavy exposure to Tesla stock, like the Simplify Volt TSLA Revolution ETF (NYSE:TESL) has also come in the line of fire, as CATL is a key battery supplier to the EV maker.

The blacklist now includes 134 Chinese companies, four of which happen to be China's top 20 by market capitalization, collectively valued at nearly $1 trillion.

ETF investors are now closely watching developments as funds with direct or indirect exposure to Chinese companies may face increased volatility.

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