Chinese news shows attack strategy on Taiwan: Accounting for 2/3 of global semiconductors, let's look at the downside risk
Since a large part of the stock market's recent gains rests on the semiconductor industry, where Taiwan is a key player, we take a look at the downside risk here. And it's huge also for the West.
This week China has held military drills in the skies and seas around Taiwan, showing how the People's Liberation Army would surround the island on all sides.
These two day military maneuvers included mock missile strikes on Taiwan and jets with live missiles used in drills. More than 30 ships and 40+ fighter jets were active in the training.
China made no secret of this and has even shown how it will attack Taiwan before launching a full-scale invasion, on the national news. Here from CCTV-13
Where have I seen this before? (hint: it's Ukraine)
While this is not new (China's aggression towards Taiwan traces back to the Chinese Civil War and the founding of the People's Republic of China in 1949), recent actions represent an escalation that eerily mirrors Russia's aggressive propaganda and disinformation campaigns preceding its invasion of Ukraine in February 2022.
Tracing back years before the invasion, Russias' aggression included military buildup and exercises (not to mention the annexation of Crimea in 2014), public indoctrination, support for separatists and cyber attacks. And we all know how that went.
However, global markets, and most notably the local Taiwan stock exchange, seem unfazed by the risk of a further escalation and an outright attack.
Nonetheless, for investors, it would be wise to take a closer look at the downside risk here. There is one clear long-tail, black swan-like event to take particular notice of.
>2/3 of the world's computing power comes from Taiwan
Taiwan is the world's epicenter for semiconductor chips, the ubiquitous parts that are used in products from data centers to smartphones.
In 2023, Taiwan’s main stock index, the Taiex, rose 26.8 percent, second best in Asia behind only Japan. Market capitalization rose NT$12.45 trillion, the biggest jump in history, of which TSMC (Taiwan listing | 2330.TW) accounted for more than NT$3 trillion of the increase alone.
