In this article, we discuss 10 stocks that will suffer if China invades Taiwan. If you want to see more stocks in this selection, click 5 Stocks That Will Suffer If China Invades Taiwan.
The United States has said on many occasions that it will retaliate against China if it decides to invade Taiwan, whereas China is adamant on the One China principle and believes that the island should be part of the People’s Republic. After US House Speaker Nancy Pelosi’s tour to Taiwan, the Chinese government said that there would be consequences for the US for extending this show of support for Taiwan.
On August 5, Zhang Junshe, a researcher at the PLA Navy Research Institute, reiterated that the Chinese military showed its strength and encircled Taiwan in retaliation to Nancy Pelosi’s visit. He stressed upon China’s military expertise, and said “we demonstrated that we can effectively stop intervention by foreign forces”. China also said on August 5 that it would stop cooperation with the United States in terms of military relations and climate change, while putting sanctions against Nancy Pelosi for her Taiwan tour.
Taiwan’s invasion would have worse consequences than the Russia-Ukraine conflict, since the country is strategically positioned as a crucial supplier in semiconductor supply chains. In case of a Chinese invasion, the US and China both would enter economic and financial warfare. Global supply chains and trade would be heavily impacted, commercial and financial decoupling would commence, the US might put energy sanctions on China’s energy imports, and in retaliation, Beijing might freeze foreign assets in the country. As per a RAND Corporation study, a war that prevails for one year would cut the US GDP by 5% to 10%, while the Chinese gross domestic product would be slashed by a painful 25% to 35%. Even if Americans rejoice that China would be worse off in this scenario, the global supply chains would be severely impacted as China is the main hub for critical technology and manufacturing.
Amid this economic warfare, there are many companies who will be caught in the crossfire. Some of the stocks that will suffer if China invades Taiwan include NVIDIA Corporation (NASDAQ:NVDA), Apple Inc. (NASDAQ:AAPL), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
Photo by Asael Peña on Unsplash
Our Methodology
We selected companies with high exposure to China and Taiwan, which would likely be caught in the crossfire if the US and China decide to put sanctions and retaliate against each other. We have arranged the list according to the hedge fund sentiment around the holdings, which was assessed from Insider Monkey’s Q1 2022 database of 900+ elite hedge funds.
Stocks That Will Suffer If China Invades Taiwan
10. United Microelectronics Corporation (NYSE:UMC)
Number of Hedge Fund Holders: 15
United Microelectronics Corporation (NYSE:UMC) is a Taiwanese semiconductor wafer foundry that operates in Taiwan, Singapore, China, Hong Kong, Japan, the United States, Europe, and internationally. If China invades Taiwan, United Microelectronics Corporation (NYSE:UMC)’s trade with China and its operations in Taiwan will be severely impacted. Additionally, Robert Tsao, founder of United Microelectronics Corporation (NYSE:UMC), announced on August 6 that he would put NT$3 billion towards Taiwan’s defense in case of a Chinese invasion.
On July 27, Mizuho analyst Kevin Wang downgraded United Microelectronics Corporation (NYSE:UMC) to Neutral from Buy with a NT$43 price target. Similarly, on July 12, Citi analyst Roland Shu double downgraded the stock to Sell from Buy with a price target of NT$32, down from NT$66. The analyst said he was “more conservative” on 8″ and legacy 12″ foundry on the back of potentially weaker consumer demand. He now expects declining year-over-year earnings growth and shrinking margins for “tier-two players into next year”.
According to Insider Monkey’s data, 15 hedge funds were bullish on United Microelectronics Corporation (NYSE:UMC) at the end of Q1 2022, with collective stakes worth $177 million. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the leading stakeholder of the company, with 5.3 million shares valued at $48.60 million.
In addition to NVIDIA Corporation (NASDAQ:NVDA), Apple Inc. (NASDAQ:AAPL), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), United Microelectronics Corporation (NYSE:UMC) is one of the stocks that will suffer if China invades Taiwan.
9. Texas Instruments Incorporated (NASDAQ:TXN)
Number of Hedge Fund Holders: 46
Texas Instruments Incorporated (NASDAQ:TXN) designs, manufactures, and supplies semiconductors to electronics designers and manufacturers worldwide. China is the biggest market for Texas Instruments Incorporated (NASDAQ:TXN), and revenues were already hit by lockdowns in China, supply chain constraints, and a difficult global macroeconomic environment. If China invades Taiwan, the United States and China might put sanctions on each other, which will impact Texas Instruments Incorporated (NASDAQ:TXN)’s sales in China.
Citi analyst Christopher Danely raised the price target on Texas Instruments Incorporated (NASDAQ:TXN) to $165 from $160 and maintained a Neutral rating on the shares. The company posted solid results and guided well above Wall Street consensus as the expected weakness from China did not materialize this quarter, the analyst told investors in a research note. While he lifted his estimates, the analyst still anticipates a correction in the sector and thinks Texas Instruments Incorporated (NASDAQ:TXN) “will fall victim”.
In Q1 2022, 46 hedge funds reported owning stakes in Texas Instruments Incorporated (NASDAQ:TXN) worth about $2 billion, compared to 53 funds in the earlier quarter holding stakes in the company valued at $3 billion. Jean-Marie Eveillard’s First Eagle Investment Management is the leading position holder in the company, with roughly 3.4 million shares amounting to $622 million.
Here is what Davis Opportunity Fund has to say about Texas Instruments Incorporated (NASDAQ:TXN) in its Q4 2021 investor letter:
“Within technology and communication services, we own a number of online businesses and semiconductor related companies, including Alphabet, Amazon, Intel, Applied Materials and Texas Instruments. Within the realm of high technology, we believe that leadership positions reflect enduring and widening competitive advantages over smaller competitors, with few exceptions. This is because online businesses, as well as semiconductor companies, benefit from economies of scale. An online search and advertising engine will, in general, be more profitable per unit of cost as it grows larger in terms of users and advertising dollars. It is a hub-and-spoke model, in other words, where it is generally not necessary to grow expenses at the same rate that revenues grow beyond a certain threshold. Therefore, returns on capital tend to be higher, the larger and more dominant the online search company is.”
8. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 61
Morgan Stanley (NYSE:MS) is a New York-based multinational investment management and financial services company. In 1993, Morgan Stanley (NYSE:MS) became one of the first American investment banks to enter China and establish a regional presence in the People’s Republic to provide fully integrated financial services. In the event of China invading Taiwan, Morgan Stanley (NYSE:MS) can be impacted if China decides to freeze US assets in the country in retaliation for any American sanctions against the Asian superpower. Similarly, the US could ask Morgan Stanley (NYSE:MS) to exit China if harsh economic sanctions are implemented.
Morgan Stanley (NYSE:MS) reported its Q2 2022 results on July 14, posting earnings per share of $1.53 and a revenue of $13.13 billion, falling short of Wall Street consensus by $0.07 and $266.45 million, respectively. Despite the disappointing Q2 report, the company declared a $0.775 per share quarterly dividend, a 10.7% increase from its prior dividend of $0.70. The dividend is payable on August 15, to shareholders of record as of July 29. Morgan Stanley (NYSE:MS) on August 5 delivered a dividend yield of 3.60%.
According to Insider Monkey’s data, 61 hedge funds were long Morgan Stanley (NYSE:MS) at the end of Q1 2022, compared to 65 funds in the prior quarter. Boykin Curry’s Eagle Capital Management is the largest shareholder of the company, with more than 14 million shares worth $1.2 billion.
Here is what Artisan Value Fund has to say about Morgan Stanley (NYSE:MS) in its Q3 2021 investor letter:
“Morgan Stanley, a leading global financial services company, came into the portfolio in late 2020 as a result of its purchase of E*TRADE. The acquisition is a great fit for Morgan Stanley’s wealth management platform and provides a considerable amount of non-interest-bearing deposit funding. James Gorman, chairman and CEO, has steadily de-risked the business by adding less volatile fee streams to complement its leading positions in cyclical businesses such as advisory, equities and FICC (fixed income, currencies and commodities). We believe the company will prove its resiliency and value over the long term.”
7. Cheniere Energy, Inc. (NYSE:LNG)
Number of Hedge Fund Holders: 62
Cheniere Energy, Inc. (NYSE:LNG) is a Texas-based energy infrastructure company, primarily engaged in liquefied natural gas businesses in the United States. Cheniere Energy, Inc. (NYSE:LNG) announced on July 20 that it would supply liquefied natural gas to a unit of PetroChina Co Ltd until 2050, which is the longest supply deal for the company. The US has indicated that it would put energy sanctions on China in case of a Taiwan invasion, which would have negative consequences for Cheniere Energy, Inc. (NYSE:LNG).
On August 5, Mizuho analyst Robert Mosca raised the price target on Cheniere Energy, Inc. (NYSE:LNG) to $167 from $159 and reiterated a Buy rating on the shares. The company “posted another blowout quarter,” the analyst told investors in a bullish thesis.
Among the hedge funds tracked by Insider Monkey, 62 funds reported owning stakes in Cheniere Energy, Inc. (NYSE:LNG) at the end of the first quarter of 2022, up from 52 funds in the preceding quarter. Carl Icahn’s Icahn Capital LP is a notable stakeholder of the company, with 9.72 million shares worth $1.3 billion.
Here is what ClearBridge Global Infrastructure Value Strategy has to say about Cheniere Energy, Inc. (NYSE:LNG) in its Q3 2021 investor letter:
“Cheniere Energy is an energy infrastructure company that owns and operates U.S. liquefied natural gas (LNG) export facilities. Strong quarterly results and the disclosure of capital allocation policies were positively received by the markets. In addition, continued supply and demand tightness in the LNG market created a favorable commodity price environment.”
6. QUALCOMM Incorporated (NASDAQ:QCOM)
Number of Hedge Fund Holders: 73
QUALCOMM Incorporated (NASDAQ:QCOM) is a California-based company that develops and designs semiconductors, software, and services for wireless technology. On July 14, QUALCOMM Incorporated (NASDAQ:QCOM) announced that next-gen Qualcomm flagship chips for smartphones will be manufactured by TSMC. Since TSMC will be one of the hardest hit companies in the event of China invading Taiwan, QUALCOMM Incorporated (NASDAQ:QCOM) might suffer if its flagship chips are delayed or the company has to find another supplier.
On July 28, Canaccord analyst T. Michael Walkley lowered the price target on QUALCOMM Incorporated (NASDAQ:QCOM) to $225 from $250 and reaffirmed a Buy rating on the shares. The analyst observed that QUALCOMM Incorporated (NASDAQ:QCOM)’s solid 5G leadership position should not only lead to robust share gains with leading smartphone OEMs but also generate strong long-term growth in IoT, RF, and automotive, but he slashed his target due to shrinking multiples.
According to Insider Monkey’s Q1 data, 73 hedge funds were bullish on QUALCOMM Incorporated (NASDAQ:QCOM), compared to 75 funds in the preceding quarter. Alkeon Capital Management is the biggest position holder in the company, with 4.10 million shares worth $626.7 million.
One of the companies caught in the crossfire of the One China vision is QUALCOMM Incorporated (NASDAQ:QCOM), along with NVIDIA Corporation (NASDAQ:NVDA), Apple Inc. (NASDAQ:AAPL), and Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM).
Here is what ClearBridge Investments Large Cap Value Strategy has to say about QUALCOMM Incorporated (NASDAQ:QCOM) in its Q4 2021 investor letter:
“Market strength continued in the fourth quarter, with only the communication services sector down in the Russell 1000 Value Index. Portfolio returns benefited from the strong performance of semiconductor maker Qualcomm, which has executed exceptionally well in pursuing the transition to 5G, growing both content and share due to its leadership position in cellular technology. The chipmaker recently outlined a number of peripheral growth opportunities outside of mobile markets, including automotive (where it hopes to leverage its strong presence in the automotive infotainment space into advanced driver assistance systems), Internet of Things (including opportunities in the PC market, VR/AR market, and factory automation) and radio frequency (where mmWave adoption globally, including China, would drive substantial upside).”
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Disclosure: None. 10 Stocks That Will Suffer If China Invades Taiwan is originally published on Insider Monkey.
