In-Depth

by Malcolm Riddell

The most dangerous place on Earth
3

'Another China-Related Risk for Investors & Corporations: Taiwan'

Barron’s

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May 7, 2021
'Another China-Related Risk for Investors & Corporations: Taiwan'
'Another China-Related Risk for Investors & Corporations: Taiwan'
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The most dangerous place on Earth

3

BIG IDEA | "Taiwan poses the biggest geopolitical risk in Asia and is likely to only increase, a reason it has to be built into investors’ [and corporates' models]" according to Arthur Kroeber, head of research at Gavekal.
“It’s a very high impact but very low probability event with an uncertain time frame.”

‘A potential conflict related to Taiwan has long been one of the “all bets are off” types of risks investors mention but dismiss as highly unlikely.’

  • ‘ “It’s a very high impact but very low probability event with an uncertain time frame,” says Gavekal head of research Arthur Kroeber.’
  • Still, ‘Taiwan poses the biggest geopolitical risk in Asia and that is likely to only increase, a reason it has to be built into investors’ [and corporates']  models,” say Kroeber.’

‘While the risk of an all-out conflict is still extraordinarily low, there is the risk of an accident, especially as China increases its efforts to deter a de facto independence and its military activity in the region, says Jude Blanchette of the Center for Strategic and International Studies.’

  • ‘That's the reason investors can’t ignore the risk completely.’

‘Instead of gaming out an all-out conflict, investors [and corporates] should be factoring in China’s options outside of an invasion, including economic pressure on Taiwan, Kroeber says.’

‘The increased risk comes as fund managers have invested heavily in Taiwan and companies like Taiwan Semiconductor Manufacturing (TSM), which is critical to everything digital—and much of tomorrow’s advanced technologies.’

  • 'Taiwan’s chip-fabricating facilities would probably not survive a military conflict, says Blanchette.'
  • ‘And the sanctions from the U.S. and its allies that would follow would cripple China’s ability to rebuild semiconductor capability in Taiwan, as well as China’s own domestic chip industry, according to Gavekal Research analysts.'
  • ‘But the more immediate risk to Taiwan's semiconductor industry and TSMC is increased economic pressure on Taiwan from China, Kroeber says.’

Reader Comment:

‘Taiwan, notably TSMC along with its surrounding support structure, is a keystone to the world's economy.’

  • ‘If one thinks the auto chip shortage is bad, one can only imagine if the entire Taiwanese economy is taken out of the picture for even a short time, let alone an extended period.’
  • ‘This is the highest stakes game since World War II, and no industry will be immune.’
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