All eyes are on Taiwan as China launches military exercises near the self-ruled island after a visit by US House Speaker Nancy Pelosi sparked an escalation in tensions. The ramifications could be widespread, and investors looking for ripples in the US market may want to tighten up the tech sector, especially companies that generate revenue from Taiwan.
A potential military conflict over Taiwan’s island democracy, which Beijing claims is its own and has said it would use force to reunite if necessary, would be an ‘everything’-type scenario likely to hit global markets. would rattle. At the moment, geopolitical strategists in China see little appetite for a military invasion of Taiwan, with analysts noting that Beijing is more concerned about preventing Taiwan’s independence than enforcing unification.
However, its claim to Taiwan is a red line with deep historical and cultural roots. Beijing’s concern that US actions and comments over the past six years point to a possible erosion of US commitment to one China policy fuels the latest tit-for-tat, including canceling military and climate talks with the US and the White House that the Chinese ambassador.
Beijing has said the military exercises will last until August 7, but if extended, JPMorgan strategists write it would amount to a military blockade that could significantly damage global shipping and strengthen global supply chain and logistics disruptions where companies struggle with. with since the pandemic. The Taiwan Strait is a major shipping route for global supply chains and opens the possibility for far-reaching ripples.
Investors looking for potential impacts may want to start with the technology sector. A screen performed earlier this year by Bank of America of
companies with disclosed direct sales to Taiwan yielded 15 companies.
Barron’s searched the list further to find five stocks selling 15% or more out of Taiwan and trading at multiples of earnings above or less than 5% off historical valuations, despite the double-digit declines so far this year.
|Company / Ticker||Price ($)||Forward P/E||YTD %||% of sales in Taiwan|
|Teradyne / TER||101.39||22.3||-38%||38%|
|Applied materials / AMAT||110.32||13.7||-29.9||23%|
|Lam Research / LRCX||524.36||14.2||-27||19%|
|Micron Technology / MU||62.93||9.7||-32||17%|
|Intel / INTC||35.5||13.8||-31||15%|
Sources: FactSet; Bank of America.
Not surprisingly, the list was jam-packed with tech companies, including:
(AMAT) generating more than one-fifth of Taiwan’s revenue, as well as
Some of these companies, such as
will benefit on the margins as US-China tensions push the US to bolster its domestic chip production with measures such as the recently passed CHIPS and Science Act. But the focus on Taiwan will put more of the spotlight on the chip industry and these are stocks to keep on the radar for potential volatility. That adds to the pressures that these stocks have already experienced this year. Bank of America downgraded companies such as
earlier this summer, amid expectations that their sales could contract next year, hurt by tighter global monetary policy, geopolitical turmoil and consumers rethinking their spending. Teradyne focuses on testing chips and has greater consumer exposure, a reason Bank of America analyst Vivek Arya cited for his downgrade in late June.
Analysts were also gloomy about
that makes memory chip devices, with Barclays analyst Blayne Curtis noting in late July that another major reset for semiconductor companies is ahead.
Write to Reshma Kapadia at [email protected]