How stocks react to Venezuela is tied to China and AI
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Illustration: Aïda Amer/Axios
The bigger market risk for investors to watch in the wake of the U.S. military action in Venezuela won't be Caracas, but Beijing, a market strategist says.
Why it matters: If China moves to protect its oil interests in Venezuela — especially by tightening rare earth exports that are critical to the AI trade — markets could turn lower quickly.
What they're saying: "I think the real wild card is China," says Peter Tchir, head of macro strategy at Academy Securities, an investment bank owned and operated by veterans.
- If China decides to retaliate, that "would be bad for markets," he tells Axios, adding that Beijing would likely focus on ratcheting up export controls on rare earths, which are used in chips that power everything from electrical vehicles to data centers.
Catch up quick: What does China have to do with Venezuela and the U.S.?
- Venezuela has among the largest heavy crude oil reserves in the world, but the country lacks the infrastructure to exploit them.
- China has been providing loans to rebuild that infrastructure and update Venezuelan refineries, becoming the country's primary oil buyer amid U.S. sanctions and getting cheap access to heavy crude in return.
- If the U.S. takes hold of Venezuelan oil, China may lose its access to it.
Between the lines: It is unlikely that China would be willing to just walk away, so Beijing may decide to retaliate against the U.S.
- The market has already reacted negatively to headlines about rare earth export controls, given how critical they are to the AI trade that is defines the stock market right now. If China does not react with export curbs, we could see a slight lift to markets.
- Tchir says export controls from China are a more likely outcome here than an invasion of Taiwan, which is another risk that investors have been weighing, as the U.S. involvement in Venezuela may embolden Beijing on its claims to the island.
Threat level: If China cuts off access to its rarest critical minerals, "I think that very quickly hurts the economy," Tchir says.
- That would become a challenge for the Trump administration, particularly ahead of midterm elections this year.
Zoom in: The Trump administration has several goals with its movement in Venezuela, from drug trafficking concerns to interests in regional oil reserves.
- But Venezuela is also thought to potentially have rare earths. If the U.S. could gain access to those minerals, it would soften its reliance on China.
The bottom line: The stock market has looked past geopolitical tensions in recent years, including the U.S. bombing of Iran.
- But relations with China pack a bigger punch, which make the next moves by Beijing the key thing to watch for investors.
