Finance
China keeps tight grip on rare earths, costing at least one company ‘millions of euros’
Mineral explorers hoping to meet the growing demand for rare earths are vying for a slice of nearly $1 billion in Brazilian funding to help make their projects a reality in a country with the largest reserves after China.
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BEIJING — Beijing still isn’t giving foreign companies access to critically needed rare earths, according to the European Chamber of Commerce in China.
At least one member has lost “millions of euros” as a result, the ECCC told reporters Monday.
The nearly 25-year-old business organization declined to share the name of the affected company, but said that other members still didn’t have clarity on a consistent process for accessing the minerals.
Rare earths are a category of minerals that are critical for a swath of products from cars to semiconductors. China controlled over 69% of rare earth mine production in 2024, and nearly half of the world’s reserves, according to the U.S. Geological Survey.
Beijing has leveraged this control in trade talks with the U.S. and other partners. Since late last year, China has ramped up its restrictions on exports of rare earths, even demanding proof that they will not be used for military purposes. China started issuing single-use export licenses following a mid-May trade truce with the U.S.
A spokesperson for German automaker Volkswagen said its “supply of parts containing rare earths is stable, and we are not experiencing any shortages. Our suppliers are continuously working with their subcontractors to obtain the necessary export licenses.”
But the ECCC said that after a pickup in approvals in June and July, members have reported increasing challenges in getting the export licenses. The business group also emphasized that the licenses still do not guarantee steady access to the rare earths, increasing uncertainty for businesses.
Nearly half of the EU’s rare earth imports came from China last year, followed by Russia and Malaysia, according to the bloc.
Growing restrictions on access to rare earths is the latest challenge for international businesses caught in the midst of trade tensions involving China.
Foreign business confidence in China has declined since Covid-19 when pandemic restrictions disrupted supply chains — the domestic economy has remained sluggish, dragged down by a real estate slump and overcapacity in industrial sectors.
The American Chamber of Commerce in Shanghai last week said its survey of members between May and June showed businesses’ confidence about the next five years hit a new low. The study also found that nearly half the respondents — highest on record — had diverted investments planned for China to other regions, primarily Southeast Asia.
European and U.S. businesses have warned a rare earths shortage would hit in the third quarter, on top of disruptions to production earlier this year.
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The ECCC said it plans to meet with European Union policymakers next week in Brussels to update them on the business situation. It also released Wednesday its annual position paper, which included several recommendations for China as the country prepares its next five-year plan.
The chamber has urged Beijing to consider ways to fix the root causes of overproduction and give the private sector a bigger role in major industries such as healthcare where state entities tend to hold a greater sway in China.
ECCC President Jens Eskelund told reporters this week that in the chamber’s recent meetings with China’s Commerce Ministry, the conversation has centered on access to rare earths.
China’s top leaders are scheduled to meet in October to discuss development goals for 2026 to 2030. Beijing lays out similar plans every five years. The 14th version, launched in 2021, wraps up at the end of this year, with the 15th starting next year.
European businesses will be closely watching that meeting, as China is the EU’s second-largest goods partner with trade standing at $732 billion euros in 2024.
Looking back at such plans, including “Made in China 2025,” “all of these things that we’re struggling [with] right now, to a big extent, is actually the outcome of policy choices,” Eskelund said. “Therefore these plans actually matter … They certainly set the direction.”
— CNBC’s Sam Meredith contributed to this report.
Cybersecurity and enterprise software stocks have been market dogs in 2026, with fears that AI will wipe out a wide range of companies in the enterprise space dominating the narrative. But they snapped a brutal losing streak this past week, joining in the broader market rally that saw all losses from the U.S.-Iran war regained by the Dow Jones Industrial Average and S&P 500.
Cybersecurity has been “a victim of some of the AI-related headlines,” Christian Magoon, Amplify ETFs CEO, said on this week’s “ETF Edge.”
It wasn’t just niche cybersecurity names. Take Microsoft, for example, which was recently down close to 20% for the year. Its shares surged last week by 13%.
A big driver of the pummeling in software stocks was a rotation within tech by investors to AI infrastructure and semiconductors and some other names in large-cap tech, Magoon said, and since cybersecurity stocks and ETFs are heavily weighted towards software companies, they were left behind even as those businesses continue to grow on a fundamental basis.
But Wall Street now has become more bullish with the stocks at lower levels. Brent Thill, Jefferies tech analyst, said last week that the worst may be over for software stocks. “I think that this concept that software is dead, and then Anthropic and OpenAI are going to kill the entire industry, is just over-exaggerated,” he said on CNBC’s “Money Movers” on Wednesday.
“Big Short” investor Michael Burry wrote in a Substack post on Wednesday that he is becoming bullish about software stocks after the recent selloff. “Software stocks remain interesting because of accelerated extreme declines last week arising from a reflexive positive feedback loop between falling software stocks and changes in the market for their bank debt,” he wrote.
The Global X Cybersecurity ETF (BUG), is down about 12% since the beginning of the year, with top holdings including Palo Alto Networks, Fortinet, Akamai Technologies and CrowdStrike. But BUG was up 12% last week. The First Trust NASDAQ Cybersecurity ETF (CIBR) is down 6% for the year, but up 9% in the past week.
Piper Sandler analyst Rob Owens reiterated an “overweight” rating on Palo Alto Networks which helped the stock pop 7% — it is now down roughly 6% on the year. Its peers saw similar moves, including CrowdStrike.
Performance of Global X cybersecurity ETF versus S&P 500 over past one-year period.
Magoon said expectations may have become too high in cybersecurity, and with a crowding effect among investors, solid results were not enough to to push stocks higher. But the down-and-then-back-up 2026 for the sector is also a reminder that when stocks fall sharply in a short period of time, opportunity may knock.
“Once you’re down over 10% in some of these subsectors, you start to see the contrarians start to say, ‘well, maybe I’ll take a look at this,'” Magoon said.
He said AI does add both opportunity and uncertainty to the cybersecurity equation, increasing demand but also introducing new competition. But he added, “I think the dip is good to buy in an AI-driven world,” specifically because the risks to companies may lead to more M&A in cyber names that benefits the stocks.
For now, investors may look for opportunity on the margins rather than rush back into beaten-up tech names. “I think investors are still going to remain underweight software,” Thill said.
But Magoon advises investors to at least take the reminder to keep an eye on niches in the market during pronounced downturns. “The best-performing are often the least bought and do the best over the next 12 months versus late-in-the-game piling on,” he said.
While that may have been a mindset that worked against the last investors into cybersecurity and enterprise software in mid-2025 when the negative sentiment started building, at least for now, it’s started working for the stocks in the sector again.
Meanwhile, this year’s biggest winner is also a good example of what can be an extended trade in either a bullish or bearish direction. Last year, institutional ownership of energy was at multi-year lows, Magoon said, referencing Bank of America data. “Reverse sentiment can be a great indicator,” he said.
But he cautioned that any selective buying of stocks that have dipped does have to contend with the risk that there is a potentially bigger drawdown in the market yet to come in 2026. That is because midterm election years historically have been marked by large drawdowns. “If you think it is bad right now, it could get a lot worse,” Magoon said. But he added that there’s a silver-lining in that data, too, for the patient investor. The market has posted very strong 12-month returns after midterm election drawdowns end. So, for investors with a longer-term time horizon and no need for short-term liquidity, Magoon said, “stick in there.”
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New innovation in the exchange-traded fund industry could come at a cost to investors during extreme conditions.
According to MFS Investment Management’s Jamie Harrison, ETFs involved in increasingly complex derivatives and less transparent markets may be in uncharted territory when it comes to violent downturns.
“Those would be something that you’d want to keep an eye on as volatility ramps up,” the firm’s head of ETF capital markets told CNBC’s “ETF Edge” this week. “As innovation continues to increase at a rapid pace within the ETF wrapper, [it’s] definitely something that we advise our clients to be really front-footed about… Lack of transparency could absolutely be an issue if we’re going to start seeing some deep sell-offs.”
His firm has been around since 1924 and is known for inventing the open-end mutual fund. Last year, ETF.com named MFS Investment Management as the best new ETF issuer.
“It’s important to do due diligence on the portfolio,” he said. “Having a firm that has deep partnerships, deep bench of subject matter experts that plays with the A-team in terms of the Street and liquidity providers available [are] super important.”
Liquidity as the real issue?
Harrison suggested the real issue is liquidity, particularly during a steep sell-off.
“We’ve all seen the news and the headlines around potential private credit ETFs. That picture becomes much more murky,” he added. “It’s up to advisors, to investors [and] to clients to really dig in and look under the hood and engage with their issuers.”
He noted investors will have to ask some tough questions.
“What does this look like in a 20% drawdown? How does this liquidity facility work? Am I going to be able to get in? Am I going to be able to get out? And if I’m able to get out, am I able to get out at a price that’s tight to NAV [net asset value], and what’s the infrastructure at your shop in terms of managing that consideration for me,” said Harrison.
Amplify ETFs’ Christian Magoon is also concerned about these newer ETF strategies could weather a monster drawdown. He listed private credit as a red flag.
“If your ETF owns private credit, I think it’s worth taking a look at, kind of what the standards are around liquidity and how that ETF is trading, because that should be a bit of a mismatch between the trading pace of ETFs and the underlying asset,” the firm’s CEO said in the same interview.
Magoon also highlighted potential issues surrounding equity-linked notes. The notes provide fixed income security while offering potentially higher returns linked to stocks or equity indexes.
“Those could potentially be in stress due to redemptions and the underlying credit risk. That’s another kind of unique derivative,” Magoon said. “I would very closely look at any ETF that has equity-linked notes should we get into a major drawdown or there be a contagion in private credit or something related to the banking system.”
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