Will China invade Taiwan? And if it does, what happens next?
These are two of the most common questions we get from readers.
And it’s easy to see why.
There are the obvious geopolitical implications…
Will the U.S. and its allies respond? And if they do… how? Will it be a direct military response… an economic one… or both?
But this is also something to watch as investors.
Tech stocks have taken a shellacking this past year.
But long term, we see the tech sector as one of the most profitable places to be as investors.
Tech megatrends like artificial intelligence (“AI”), gene editing, and the quests for nuclear fusion-based energy and space travel will reshape our world… and make investors rich.
But none of it can happen without the “work horses” of the tech world – semiconductors.
Also known as chips, they go into every piece of advanced tech on the planet.
And Taiwan accounts for 90% of the world’s advanced semiconductor production.
Colleague Jeff Brown worked in the semiconductor industry before joining the team at Legacy Research.
And he’s been tracking the escalating tensions between China and Taiwan over at our tech investing e-letter, The Bleeding Edge.
And one of his readers wants to know more…
Reader question: Hi Jeff, I always enjoy your work in The Bleeding Edge!
I have a question about China’s potential takeover of Taiwan. From what you’ve said, it sounds like it’s inevitably going to happen, so how do you think it will affect the markets, if at all?
– Matthew L.
Jeff’s response: Hi, Matthew. Thanks for your question.
Based on my analysis, a “takeover” of Taiwan by China is both inevitable and imminent.
In October, Xi Jinping got himself reelected for a third term as Chairman of the Chinese Communist Party. Historically, China had the same two-term limits as the U.S.
Xi had to overcome critics with commitments. And probably the most significant one was to reunify Taiwan with Mainland China.
Xi will not lose face on this. And he likely has had plans in place for years. But this doesn’t necessarily mean a full-scale military invasion. It’s a possibility. But it’s not the most likely outcome.
I lived and worked in Japan for decades in the semiconductor industry. I’ve been to Taiwan a hundred times. And I can tell you that China has been in Taiwan for years. It’s been slowly asserting administrative control and placing its people in positions of influence and power.
This is what happened with Hong Kong. One moment, it appeared to be semi-autonomous city to the Western eye. Then it felt like it was suddenly under the heel of Beijing.
The same thing will happen to Taiwan.
The country held local elections last November. The Democratic Progressive Party (“DPP”) is Taiwan’s leading pro-independence party. It suffered its worse election defeat in 36 years to the Kuomintang, Taiwan’s main China-friendly party.
The DPP won only five of the cities and counties in the archipelago of 23 million people, its worst performance since its founding in 1986.
The CCP has interfered in U.S. elections via fake social media accounts that attempt to drive wedges between American voters. And Taiwan has accused China of repeated efforts to sway the results of its elections, whether by online disinformation campaigns or overt military threats.
Slowly but surely, the CCP can establish control over the island via a party that’s more friendly to reunification.
A Chinese naval blockade of Taiwan is possible. But it’s unlikely. It would be so provocative as to almost require some form of military response from the West.
What does this mean for us as investors?
It’s not as easy as diversifying away from companies with connections to Taiwan. That’s a start. But the impact of this will be far-reaching.
Taiwan is home to TSMC (“Taiwan Semiconductor Manufacturing Company”). It’s the world’s largest semiconductor fabrication facility.
If China is in control of Taiwan’s economic resources, it has the power to hold the global economy hostage. Taiwan is that strategically important to the world.
The company has been diversifying its manufacturing capabilities outside of Taiwan. But most semiconductor manufacturing – and all manufacturing for advanced semiconductors – happens on the island.
I expect markets to react negatively to a “soft invasion.” But it won’t be world-ending. I expect China will allow Taiwan’s industries to operate – more or less – as they had before.
We’ll get lot of posturing from Washington. We’ll hear speeches about how “unacceptable” it is. But the Chinese position will be that it’s a Chinese matter. And if Beijing allows TSMC to operate normally, the U.S. will back down.
It will be tense. But it will also be a boon for U.S. manufacturing. It’s been a difficult lesson. But the West has finally realized critical manufacturing capacity is a national security issue.
Executives in the industry – including me – have been warning about this for years. But it took the pandemic lockdowns, the supply chain breakdowns, Russia’s war in Ukraine, and the standoff between China and Taiwan for the world to finally realize it.
Now, advanced manufacturing for our most critical industries will reshore.
In January 2022, U.S. chipmaker Intel announced a $100 billion investment into Ohio – the heartland. It wants to build the world’s largest chipmaking facility next to cornfields. The company also announced a $20 billion investment into an Arizona plant.
This is the most exciting thing I’ve seen from Intel in decades. And it’s not happening in Silicon Valley. It’s extraordinary.
Korean tech giant Samsung plans to spend $17 billion on a chip plant in Texas. And TSMC is spending $12 billion in Arizona. It needs to diversify its supply chain.
Micron, another chipmaker, is looking to spend as much as $40 billion – maybe in Arizona, maybe in Texas. And On Semiconductors has committed $720 million to take over and expand a GlobalFoundries fab.
Meanwhile, GlobalFoundries – a smaller competitor to TSMC – wants to spend billions on a new facility in upstate New York.
The future of high-tech manufacturing is taking shape before our eyes. And I’ll update readers as this trend plays out.
Next, we turn to former Wall Street insider Nomi Prins with a question from a new investor about gradually easing into buying stocks…
Reader comment: I am retired and don’t have a lot of money to buy investments after bills are paid. I have spent $300-500 per pay period to buy stocks you have recommended. Thank you!
I’m interested in building a separate revenue stream from my social security payments. What I need is a dividend stock that is $20-30 per share and then to invest more money in it every pay period. And then reinvest those dividends until I’m able to create an additional income stream.
This is the first time in my life that I’ve opened my own brokerage account so I’m a real newbie! I’m not comfortable investing in options or penny stocks because I don’t understand them and don’t want to take on that kind of risk! It scares me to death!
I’m more comfortable buying and holding those stocks that will grow my nest egg. So, anything you can do to help would be greatly appreciated!
– Ariella S.
Nomi’s response: Hi, Ariella. Thank you for sharing your perspective as a new investor. I can’t give personalized investment advice. But I applaud your practical approach to building up your portfolio.
The process of investing a fixed dollar amount each month is called dollar-cost averaging. You buy whether a stock’s price is going up or down. And because this forces you to buy the dips, over time, this can lower the cost of owning those shares.
And dividend stocks are a great way to go. They pay out regular income in the form of cash dividend payments. And a company’s ability to pay out dividends to shareholders is a sign of financial health.
As a subscriber of my Distortion Report advisory, you can find stocks we’ve recommended there in the model portfolio that fit your criteria.
We’ll wrap up with some praise for our go-to currency trading expert, Imre Gams.
If you’ve been following along in these pages lately, you’ll know that he and our master trader, Jeff Clark, have teamed up to launch Currency Trader.
Its mission is to harness the unprecedented volatility in the interntional currency market for profit.
So far, more than 2,000 people have signed up. And the results have been spectacular.
Imre has recommended 24 trades since last July. And 22 have been winners.
During the 76-day beta test phase, Imre’s readers had the chance to make a cumulative profit of 448%.
And depending on their account size… and how much risk they chose to take on… they could have made gains of $2,339, $1,694, and $3,560 in as little as one day.
Here’s just a small sample of what Imre’s readers have had to say about Currency Trader…
I’ve made about $3,500. I couldn’t subscribe fast enough!
I was trading crypto and wanted to switch to forex but didn’t know how to get started. And within a few weeks of that realization BOOM, this was perfect!
I am a lifetime subscriber. I trust Imre, the video updates are so thorough and polished… this is going to be a great adventure… and a great second half of my life (I’m 58 and truly starting over).
Much love, respect, and appreciation to you Imre!
– Darrynne J.
Imre, your recommendations have been brilliant. I made 365 “pips” [the unit of measurement currency traders use to track the change in value between two currencies] on the USD/JPY trade.
Three winners out of the four is excellent. Well done, and I await more recommendations.
– Alfred R.
Your educational videos along the way have been very valuable to a complete newbie like me. You explain things well and make it easy to understand.
After just a few trades, my account is now up to $287, which I think is about a 43.5% gain. I’m very pleased!
– Mike S.
I have almost doubled my initial investment with Currency Trader.
I was extremely excited when Jeff and you introduced Currency Trader, as it’s something I have been fascinated by but only from a distance as no one has explained it all as well as you.
My plan is to use my proceeds to “ride the rush” and continue to grow my account and experiences.
– Andrew L.
Your trade alerts are very clear and precise, and therefore very easy to understand and execute. In particular, I appreciate your trading style where risk management is your No. 1 priority.
My plan for profits generated is to provide a level of income during my retirement, especially during these times of market volatility and drawdowns.
Even though I live in Auckland, New Zealand, I am still able to execute trade alerts without difficulty. Many thanks for a wonderful service. Your skill and efforts are much appreciated!
– Mark M.
I was able to take 50% profits, then my position automatically closed at the target.
Thanks, and I’ll continue to hit the training material and start building my charts and targets on my own as well for good practice.
– Tony C.
That’s all we have for you today.
If you have a for Jeff, Nomi, Imre, or any of the Legacy team, send it to [email protected].
As always, I’ll do my best to get you an answer.
Have a great weekend.
Regards,
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Chris Lowe
Editor, The Daily Cut