After weeks of military build-up and rising international tension, communist China launches a full-scale invasion of Taiwan.
Why? Because the global economy depends to a terrifying extent on Taiwan, a small island of 24million people, roughly the size of Switzerland. What does this mean for investors?If China invaded Taiwan, global stock markets would tumble as disruption to global supply chains led to shortages of key components like microchips.As inflation takes hold, interest rates would rise, potentially plunging the global economy into recession.
That’s why anyone with shares such as TSMC, ASML or Nvidia needs to keep a particularly close eye on the Taiwan situation, as do investors in technology funds and index-trackers with holdings in such companies. ‘This risk has been known for a long time but judging by the stellar performance of Nvidia and TSMC on the stock market, it hasn’t been priced into their shares,’ AJ Bell said.
The fortunes of that business in turn are deeply intertwined with the US tech giants that have driven most of the gains on Wall Street, such as Nvidia, Tesla and Apple.An invasion would not necessarily hand China’s President Xi Jingpin control of Taiwan’s chip manufacturing capability. Panic sweeps western capitals, global stock markets slump and billions are wiped off the value of pension funds in Britain and elsewhere.
TSMC’s most advanced local fabrication plants, or ‘fabs’, carve microscopic mazes of tiny transistors on an unimaginably tiny scale. To free itself from this ‘chip choke’, Beijing is pumping billions of dollars into developing its own semiconductor technology.Experts say it is only a matter of time before the Chinese succeed.
Foiling an invasion by president Xi Jinping, pictured, could come at a heavy price for the digital world, with catastrophic financial consequences They are also keen to prevent a repeat of the chip shortages that risked paralysing the global economy during the pandemic.Both TSMC and former chip leader Intel are building heavily subsidised semiconductor plants in Arizona as part of President Joe Biden's $50billion CHIPS and Science Act.