Asia Unhedged called the end of the tech boom on March 29 (The tech bubble gets its (w)reckoning). The Trump Administration poured gasoline onto the fire by cutting off ZTE’s access to US-made chips. That persuaded China that building up its own chip-making sector was not only an economic priority, but a national security requirement. And that means a global glut of semiconductors.
The SOX semiconductor index has fallen by 16% since its March 3 peak. The US negotiating team now in Beijing wants China to stop subsidizing its semiconductor industry, a difficult argument to make after refusing to sell American chips to Chinese companies. That sets up a tough outcome for this week’s trade talks, and the market doesn’t like it. A simple way to think about it is that the expansion of world trade has centered on the creation of a global supply chain in electronics and other products that maximizes efficiency and reduces prices. The trade issues between the US and China threaten to break up the supply chain.
Contributing to the shakiness of global equity markets is the rupture in some of the world’s most heavily-indebted emerging markets, notably Turkey, whose currency is in free fall and whose stock market has lost 31% in US dollar terms since its August 29th peak. Asia Unhedged has been a Turkey bear since early September, and we note with satisfaction that Turkey is the worst-performing major market in the world.
Although Chinese stocks offer good value, the threats to world trade and the prospective disruption of the global supply chain are a powerful headwind for the time being. The most widely-traded China ETF in US markets, FXI, today fell below its 200-day moving average. So it isn’t a time to buy anything. Stay warm and dry.
Kevin-Maricko McCoy
Get some common sense and save some typing.
You got it all wrong! The US is not demanding China stop civil and commercial technology. Simply put China must 1) stop demanding that in order for US companies to do business in China they must first agree to give up their intellectual property as a prerequisite. The US doesn’t do this to Chinese companies doing business with USA. 2) Stop the State funding of Chinese business over other Countries and their companies who operate based solely on companies own monies subsidizing their risks (profits and losses) This creates unfair business dealings with other countries who operate soley on the PRIVATE SECTOR. 3) Stop the regular and deliberate stealing of American intellectual property theft through internet and other attacks on American businesses. Finally, President Xi has embarked on a strategy of becoming the World premier economic super power in all areas including semi-conductors,
robotics and artificial intelligence with a "Made in China 2025" pursuit. Any country in their right mind especially America as the current #1 Global Economy understands what China is trying to do. It’s not about trade it’s about economic superiority and with this comes military superiority. Let China make their own semi-conductors, develop their own artificial intelligence and hi-tech electronics but don’t expect America to bend over and be punked by any country with this current track record.
https://www.economist.com/news/business/21688871-china-wants-become-superpower-semiconductors-and-plans-spend-colossal-sums