Tech stocks wobble on deepening Sino-US chip war

FE Team | Published: July 25, 2024 19:47:17

SINGAPORE, July 18 (Reuters): Chip stocks in Asia tumbled on Thursday while their European counterparts got off to a tentative start after a news report that the United States was considering tighter curbs on exports of advanced semiconductor technology to China.
Among the worst hit in Asia were shares of Taiwan Semiconductor Manufacturing Co (TSMC), the world's largest contract chipmaker, which has shed roughly T$1.7 trillion ($52.13 billion) in market value over two days.
Remarks from US Republican presidential nominee Donald Trump that Taiwan should pay America for its defence added to the wave of bad news and sent shares of TSMC down 2.4 per cent.
In its earnings results on Thursday, TSMC said it expects third-quarter revenue to surge by as much as 34 per cent from a year earlier, after posting a quarterly net profit that beat market expectations.
Other technology behemoths in Asia similarly suffered losses, with South Korean memory chipmaker SK Hynix sliding 3.6 per cent and Japan's Tokyo Electron slumping 8.75 per cent.
The Global X Asia Semiconductor exchange-traded fund, which lists SK Hynix, Tokyo Electron, TSMC, and Samsung Electronics among its major holdings, fell 1.74 per cent, reducing gains for the year to 16.7 per cent.
Over in Europe, the STOXX 600 index rose 0.2 per cent, though the technology sub-index fell to a six-week trough and last traded 0.37 per cent lower.
The Bloomberg News report published during Asian trading hours on Wednesday said President Joe Biden's administration was weighing a measure called the foreign direct product rule that allows the US government to stop a product from being sold if it was made using American technology.
That would potentially mean restrictions on companies such as Tokyo Electron and the Netherlands' ASML.
ASML shares ticked up 0.3 per cent on Thursday, reversing some of its more than 10 per cent decline in the previous session despite releasing forecast-beating second-quarter earnings on the same day that showed a rise in artificial intelligence-linked bookings.
Washington's protectiveness towards the US semiconductor manufacturing industry, which it views as strategically important for competing against China, has raised increasing concerns for investors.
Those concerns overrode the strong recent earnings releases from ASML, said Kang Jin-hyeok, an analyst at Shinhan Securities in Seoul, who also noted that ASML's heavy sales to China maket it a target of the proposed US curbs.
"It seems macro and geopolitical factors played a bigger role than fundamentals," said Kang.
China accounted for about 49 per cent of ASML's lithography system sales in the second quarter and represents about 20 per cent of its order backlog.
TSMC said in its first-quarter earnings report that 69 per cent of its revenue was from customers based in North America and 9 per cent from China. Similarly, a March corporate filing from SK Hynix stated 31 per cent of its sales came from China last year.
The Biden administration has moved aggressively to curb Chinese access to cutting-edge chip technology, including sweeping restrictions issued in October to limit exports of artificial intelligence (AI) processors designed by firms including Nvidia.
The latest wrinkles in Sino-US relations have sped up what appeared to be initial signs of investors' rotation from Big Tech stocks into smaller value ones, on the view that lower US rates will benefit smaller companies.
The global AI boom has driven a blistering rally in tech stocks this year that has surpassed records, with the Nasdaq up 20 per cent to date, while the S&P 500 has surged 17 per cent.
"Positioning had become very extreme in the semi-conductor/AI space and the import curb comments catalysed a de-risking event," said Jon Withaar, who manages an Asia special situations hedge fund at Pictet Asset Management.