Following the US government’s decision to limit China’s access to semiconductor technology, the stock markets of Japan, South Korea, and Taiwan all saw declines, contributing to the sector’s overall market capitalization falling by an additional $240 billion. The Taiwan Semiconductor Manufacturing Co. (TSMC), which is the world’s largest chipmaker, experienced its worst slump since May 2021 on Tuesday, when shares dropped more than 8%. Concerns that the United States’ efforts to obtain international cooperation would limit their potential to export to China led to the collapse of both Samsung Electronics and Tokyo Electronics.
The selling pressure was also seen in the currency markets. When measured against the US dollar, the South Korean won dropped by as much as 1.6%, while the Taiwan dollar dropped by 0.7%. There is a high probability that the limits will have far-reaching effects. Those having production lines in China, including companies from other countries, would be required to obtain government approval and face additional challenges as a result of the rules. It is also anticipated that the judgment will have repercussions throughout the supply chain of the industry. This will add to the expanding list of challenges facing technology equities, which already includes an active Federal Reserve and turmoil on both sides of the Taiwan Strait.
On Friday, the United States began enforcing the export restrictions, and it has been suggested that other countries may also begin enforcing export restrictions in order to secure global collaboration. Following the release of the news, the Philadelphia Stock Exchange Semiconductor Index experienced a decline of 9% over the subsequent two trading days, with the index closing on Monday at its lowest level since November 2020. On that day, due to a holiday, the markets in Taiwan, Japan, and South Korea were closed.
The 3.9% decline suffered by Samsung was the most in the past 12 months. The stock of SK Hynix Inc., based in South Korea and one of the major memory chip producers in the world, which also has operations in China, dropped by 3.5% before recovering.
According to numbers published by Bloomberg, the most recent decline has already wiped off more than 240 billion dollars worth of value from semiconductor stocks around the world since the market closed on Thursday. According to a note that was published on Monday by Nomura Holdings Inc. analyst David Wong, the restrictions represent “a huge blow to China” and “terrible news” for the global chips industry. According to what he wrote, China’s ambitions to localize manufacturing may also be “at risk” because the country may be unable to access modern foundries in Taiwan and Korea.
Morgan Stanley issued a warning on Tuesday that tougher limits on supercomputers and foreign capital investment in China could have a “disruptive” effect, which caused the shares of Chinese chipmakers to fall even lower.
In recent days, Chinese official media and authorities have responded to Vice President Biden’s position, issuing a warning about the economic ramifications and fueling speculation about possible future punishment. The restrictions are put in place with the intention of stymieing China’s aspirations to establish its own semiconductor industry and to enhance its military capabilities. They include restrictions on the export of certain types of chips used in artificial intelligence and supercomputing, as well as tighter restrictions on the sale of semiconductor manufacturing equipment to any Chinese company. These restrictions were put in place to prevent China from gaining an advantage in artificial intelligence and supercomputing.
The United States of America wants to make sure that Chinese businesses do not hand over their technological know-how to the Chinese military and that Chinese chipmakers do not become capable of manufacturing advanced semiconductors on their own.
Photo Credit: Representational/Unsplash.
News from SNBC.com.