In this article, we discuss 10 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).”
5. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 80
Tesla, Inc. (NASDAQ:TSLA) is greatly dependent on China. Its Shanghai factory was responsible for roughly half of Tesla, Inc. (NASDAQ:TSLA)’s manufacturing in 2021, and China is one of the leading markets for its vehicles. Elon Musk has also said that China has the potential to become the largest market for Tesla, Inc. (NASDAQ:TSLA). If China were to invade Taiwan, Tesla, Inc. (NASDAQ:TSLA) would be impacted heavily in case the People’s Republic decides to ban its vehicles in the country, or if the US pressures Tesla to exit China.
On August 3, Morgan Stanley analyst Adam Jonas said that House Speaker Nancy Pelosi’s visit to Taipei “casts the global battery race into a new light” and noted that Tesla, Inc. (NASDAQ:TSLA) is “highly exposed to both the risk and the opportunity” in the global EV battery dominance. Tesla, Inc. (NASDAQ:TSLA) has the largest exposure to the domestic Chinese market, said the analyst, who also thinks Tesla, Inc. (NASDAQ:TSLA)’s role in building American and Western European renewable energy infrastructure is “underappreciated”. He reiterated an Overweight rating and an $1,150 price target on Tesla, Inc. (NASDAQ:TSLA) shares.
Among the hedge funds tracked by Insider Monkey, Cathie Wood’s ARK Investment Management is one of the leading stakeholders of Tesla, Inc. (NASDAQ:TSLA) as of Q1 2022, with 1.6 million shares worth $1.7 billion. Overall, 80 hedge funds were long Tesla, Inc. (NASDAQ:TSLA) at the end of March 2022, down from 91 funds in the earlier quarter.
Here is what GMO LLC has to say about Tesla, Inc. (NASDAQ:TSLA) in its Q1 2022 investor letter:
“To put the demand growth for clean energy materials into perspective, let’s look at Tesla (NASDAQ:TSLA). At its Battery Day last year, Tesla projected three terawatt hours of lithium-ion battery capacity needed in 2030 for the EVs and storage they expect to produce. To reach this target, Tesla alone would gobble up approximately 75% of the world’s current nickel production and four times the world’s current lithium production. These numbers are astounding enough, but when one considers that EVs currently represent just 15% of global nickel demand and about 45% of lithium demand and that Tesla will likely be producing only a small proportion of the world’s EVs in 2030, the implications are staggering. Clean energy materials companies will make a lot more money in the decades to come than they ever have both because they will be selling a lot more metric tons of material and because there are certain to be shortages where supply can’t keep up with the rapidly growing demand.”
4. Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)
Number of Hedge Fund Holders: 81
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) manufactures and sells integrated circuits and semiconductor devices in Taiwan, China, Europe, the Middle East, Africa, Japan, the United States, and internationally. TSMC Chair Mark Liu said on August 2 that if China were to invade Taiwan, Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s factories would be rendered “not operable”. The company will be one of the worst hit firms in case of a Chinese invasion.
On August 1, Susquehanna analyst Mehdi Hosseini lowered the price target on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) to $88 from $90 and kept a Neutral rating on the shares. The analyst observed Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM)’s robust revenues in 2022 actually make 2023 more challenging. He said it is encouraging to see Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) noting a looming inventory correction, but said the 1H23 inventory correction will be harsher than expected.
According to Insider Monkey’s data, 81 hedge funds were bullish on Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) at the end of Q1 2022, up from 72 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management is the leading stakeholder of the company, with more than 26 million shares worth $2.7 billion.
Here is what ClearBridge International Growth EAFE Portfolio has to say about Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) in its Q2 2022 investor letter:
“Disciplined selling is a key component of our risk-based approach, especially among companies with cyclical growth drivers. We have seen good success over the last several years from our semiconductor exposure but have been taking profits in companies such as, this quarter in Taiwan Semiconductor (NYSE:TSM) to reduce overall industry exposure. Given the exceptional sets of circumstances of semi shortages, double ordering and good growth in end market products including personal electronics and even data centers, we believe a neutral market position to this industry within the tech sector is appropriate.”
3. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 83
Advanced Micro Devices, Inc. (NASDAQ:AMD) is a California-based semiconductor company that operates in two segments – Computing and Graphics, and Enterprise, Embedded and Semi-Custom. Advanced Micro Devices, Inc. (NASDAQ:AMD) has global operations, and its assembly and test manufacturing facilities are located in Malaysia and China. If China invades Taiwan, Advanced Micro Devices, Inc. (NASDAQ:AMD)’s manufacturing line could be significantly impacted as tensions between the US and China escalate.
On August 3, JPMorgan analyst Harlan Sur lowered the price target on Advanced Micro Devices, Inc. (NASDAQ:AMD) to $120 from $140 and kept a Neutral rating on the shares. The analyst said that despite Advanced Micro Devices, Inc. (NASDAQ:AMD)’s optimistic outlook on the second half of the year after a strong first half and a reaffirmation of its full year guidance, he slashed forward estimates to factor in slowing global demand that he thinks will pose challenges to the global PC and server total addressable market. Although Advanced Micro Devices, Inc. (NASDAQ:AMD) is still achieving significant processor market share, growth rates are beginning to get impacted as macro issues start to strengthen heading into 2H22, contended the analyst.
According to Insider Monkey’s data, 83 hedge funds were long Advanced Micro Devices, Inc. (NASDAQ:AMD) at the end of March 2022, up from 69 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management featured as the leading position holder in the company, with 24.3 million shares worth $2.6 billion.
Here is what Carillon Tower Advisers has to say about Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q4 2021 investor letter:
“Advanced Micro Devices (AMD) supplies semiconductor chips for central processing units (CPUs) and graphic processing units (GPUs). The firm has been gaining share against its primary competitor in the datacenter server CPU space, as this rival has been unable to match the design and manufacturing capabilities of AMD and its partners. Investors are also looking forward to the closing of the previously announced merger with a semiconductor manufacturer that is another one of the portfolio’s holdings. The merger will increase AMD’s capabilities in the Field Programmable Gate Array (FPGA) chip space, and the combined company should possess the potential to win additional market share in the datacenter chip market.”
2. NVIDIA Corporation (NASDAQ:NVDA)
Number of Hedge Fund Holders: 102
NVIDIA Corporation (NASDAQ:NVDA) was incorporated in 1993 and is headquartered in Santa Clara, California. The company designs semiconductors and integrated circuits, but does not manufacture them. TSMC manufactures the bulk of NVIDIA Corporation (NASDAQ:NVDA) chips, and with TSMC hit by the Chinese invasion, NVIDIA Corporation (NASDAQ:NVDA) will also suffer as a consequence.
On July 25, Barclays analyst Blayne Curtis lowered the price target on NVIDIA Corporation (NASDAQ:NVDA) to $200 from $295 and kept an Overweight rating on the shares. The latest semiconductor rally should fade as it is “way too early to buy the dip,” the analyst told investors in a research note. He believes semis are still in for a “substantial reset” and he slashed wafer fab equipment estimates.
Among the hedge funds tracked by Insider Monkey, Phill Gross and Robert Atchinson’s Adage Capital Management is one of the leading stakeholders of NVIDIA Corporation (NASDAQ:NVDA), with 2.5 million shares worth $694.4 million. Overall, 102 hedge funds were bullish on the stock at the end of Q1 2022.
Here is what ClearBridge Large Cap Growth ESG Strategy has to say about NVIDIA Corporation (NASDAQ:NVDA) in its Q2 2022 investor letter:
“Chipmaker Nvidia (NASDAQ:NVDA) has also been pressured by multiple compression of higher growth companies and weakness in its gaming business. While Nvidia has grown into a top 10 position with its strong performance through late 2021, we have been consistently trimming the position to derisk against short-term volatility in its gaming business. The company is clearly exposed to the semiconductor cycle but also participates in the secular growth of cloud and AI adoption through its data center business. With these secular drivers intact and new products ramping up in the second half of the year, we are maintaining an overweight to the company.”
1. Apple Inc. (NASDAQ:AAPL)
Number of Hedge Fund Holders: 131
Apple Inc. (NASDAQ:AAPL)’s largest iPhone factory is operated by Foxconn Technology Group in Zhengzhou, Central China’s Henan Province. If the US and China were to put economic sanctions on each other, Apple Inc. (NASDAQ:AAPL) stands to suffer incredibly as it is largely dependent on the Chinese supply chain and labor force.
Morgan Stanley analyst Erik Woodring estimated that Apple Inc. (NASDAQ:AAPL)’s App Store net revenue growth declined to 1% year-over-year in July from 2.5% year-over-year growth last month. The deceleration, which the analyst observed was worse than he anticipated, was driven by year-over-year slowdowns in all of the App Store’s 10 biggest markets, except for Germany and France. His Q3 2022 App Store estimates for 5% year-over-year growth remain unchanged, and he maintained an Overweight rating and a $180 price target on Apple Inc. (NASDAQ:AAPL) shares on August 3.
Among the hedge funds tracked by Insider Monkey, 131 funds were bullish on Apple Inc. (NASDAQ:AAPL) at the end of Q1 2022, compared to 134 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway is the largest stakeholder of the company, with 891 million shares worth $155.5 billion.
Here is what Wedgewood Partners has to say about Apple Inc. (NASDAQ:AAPL) in its Q2 2022 investor letter:
“Apple grew revenues +9%, driven by +17% growth in the Services segment. While iPhone revenues grew a modest +5%, it was on an exceptional year ago comparison of +66%. iPhone continues to capture most industry smartphone profits by focusing on high-end price tiers. Apple is taking nearly two-thirds of the revenue share in the premium ($400 and above) smartphone segment. Further, most of the growth was driven by expansion in the “ultra-premium” price tier of $1000 or more per unit.[1] As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially integrated circuits) and software continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.
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Disclosure: None. 10 Stocks That Will Suffer If China Invades Taiwan is originally published on Insider Monkey.
