Asian Chip Stocks Drop Further on Profit-Taking, U.S. Political Uncertainty

By Sherry Qin

Asian chip stocks lost further ground, dragged by a mix of profit-taking, uncertainty about the U.S. political landscape and concerns about America's future commitment to Taiwan's security.

Taiwan Semiconductor Manufacturing Co., the world's largest contract chip maker, dropped 3.2% Monday despite reporting a profit beat and lifting its full-year outlook late last week, while Taiwan-based Foxconn Technology Group, which is witnessing surging demand for its AI servers, ended 5.6% lower, its largest one-day percentage loss in two years.

The two index heavyweights' losses sent Taiwan's Taiex down 2.7%.

In South Korea, Samsung Electronics, the world's largest maker of memory chips, ended 1.7% lower, while rival SK Hynix shed 2.15%. Tokyo Electron slipped 2.6% in Japan.

China's largest chip maker, Semiconductor Manufacturing International Corp., lost 0.4% in mainland trading but climbed 2.3% in Hong Kong amid a broader tech rally in the Asian financial hub.

Morningstar analyst Phelix Lee attributed the selloff in Taiwan partially to profit-taking. TSMC and Foxconn have risen 58% and 84%, respectively, this year amid the artificial-intelligence boom.

Meanwhile, some investors are pricing in a higher chance of a Donald Trump presidency in the U.S., analysts said, after President Biden's weekend decision not to run for re-election. Over the past 75 years, only two Democratic presidents have dropped out of a presidential race, and both of their successors lost to Republican candidates in elections.

The Democratic candidate could face some chaos in the short term, while Trump has more time to win over voters, said Arisa Liu, a semiconductor research director at the Taiwan Institute of Economic Research.

If Trump is re-elected, "how he will deal with the uncertainty and high risks brought by the ongoing tense Taiwan Strait dispute could bring unpredictability to global technology and economic conditions," Liu said.

Taiwan chip stocks sold off last week following Trump's hawkish remarks that took aim at the economy's chip-production dominance, including saying in an interview with Bloomberg Businessweek that the island should pay the U.S. for defense.

TSMC, which produces about 90% of the world's advanced chips and counts Nvidia and Apple as clients, is pivotal in the global semiconductor supply chain. The simmering threat of a Chinese invasion and the emergence of chip manufacturing as a geopolitical priority have pushed it to spread out geographically, including with plans to spend more than $65 billion on new plants in Arizona.

Still, analysts said a Trump presidency is unlikely to hurt the emerging AI revolution or the tech bull market.

As Trump is trying to win the presidency, he wants to assure the voters that he will fight for the trade imbalance, but not at the cost of risking the U.S.'s global AI leadership, said Daniel Newman, chief executive of global tech advisory Futurum Group.

"The bark will be way worse than the bite on the U.S.-China cold tech war fears," Wedbush analyst Daniel Ives said in a research note.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

July 22, 2024 05:21 ET (09:21 GMT)

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