Chinese investors pivot from TSMC to ASML due to geopolitical pressures
In response to escalating geopolitical pressures, Chinese investors are pivoting their focus from Taiwan Semiconductor Manufacturing Co (TSMC) to ASML Holding.
As tensions escalate between China and Taiwan, some equity investors are reconsidering their commitment to Taiwan Semiconductor Manufacturing Co (TSMC), the world's leading contract chipmaker. Prominent investors like Zehrid Osmani from Martin Currie and Bruce Kahn from Shelton Capital Management have either reduced or sold their TSMC stakes in recent months, favoring investment in ASML Holding, a critical supplier to TSMC.
Chinese investors pivot from TSMC to ASML due to geopolitical pressures
The decision to shift investments might seem counterintuitive, given that TSMC's stock has surged by 22% this year, outpacing ASML's 10% gain. However, the underlying factor is the heightened geopolitical volatility surrounding Taiwan, which plays a pivotal role in U.S.-China dynamics. Investors, including Warren Buffett, perceive the risk of a geopolitical conflict outweighing TSMC's market prowess.
ASML Holding, headquartered in the Netherlands, presents an attractive alternative. The company manufactures lithography machines crucial in chip production and boasts a diverse client list that includes industry giants like Intel and Samsung. According to David Allen of Plato Investment Management, ASML is considered a more geopolitically insulated choice, providing investors with a kind of "safe haven."
This shift in investor sentiment highlights a disconnect between market valuations and geopolitical risks. Bruce Kahn suggests that current market valuations of TSMC may not adequately account for the geopolitical tensions, drawing parallels to investor unpreparedness seen during Russia's invasion of Ukraine.
The transition to ASML comes with its challenges. ASML experienced a slump in orders in the last quarter, while TSMC exceeded quarterly sales expectations. Both companies remain vulnerable to the ongoing U.S.-China chip feud. However, ASML is well-positioned to benefit from TSMC's expanding global footprint, particularly in Germany and the United States, where there will be a greater demand for ASML's equipment.
