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Taiwan and the US election



Back in July, after President Biden's disastrous old-mannish debate performance, stocks in Taiwan took a tumble.

Taiwan Semiconductor Manufacturing Co., a chipmaker critical to the world's computer industry, collapsed, losing 5.6% of its value on a single day. This was largely on fear that the debate foretold a coming Trump Presidency, and that Trump would be less interested than Biden or several earlier Presidents in preserving Taiwan's de facto independence from Beijing.   

It might be natural to ask: if TSMC stock fell sharply on the danger that Trump would be elected, what has the reality of a Trump election done to it?  

Kind of strange but ... the immediate effect has been to lift the price.

Here is a six-month chart:

TSMC stock chart - Google Search

The TSMC stock price, as you can see, was rising more-or-less steadily for the first two months of the charted period, peaking on July 10. That is a little to the left of the central axis of the above screen shot.  Then it heads down -- not just on the one day I mentioned above, the 16th of that month, but in a continuing fall with some zig-zagging, until hitting a bottom on August 5. Near the middle. Then it turns around. 

Some observers (I was one of them) thought the turnaround meant that the smart money was favorably impressed by the then-new Harris campaign, so this rise was a testament to the intertwined nature of our economies.   

But look at the rightward edge. The price is now well above where it was in early July.  What is more: it held up just fine when Trump was elected. Its immediate response was upward. 

Why? There is often a reflex, "sell when you're worrying about X and buy when X has happened." A simple example: a company may be disadvantaged by a prospective regulation. The price may fall as news stories appear about how the pertinent agency has the regulation under consideration. But THAT drop may represent an overstated view of how bad that news would be.  Cooler heads and valuations may prevail once the regulation is not a prospect but a fact, and there may be an upward bounce.  

BUT ... you might say ... an unfavorable regulation simply changes facts on the balance sheet. It is not normally an existential threat to the existence of the business. A war over the PRC's assertion of sovereignty over the island certainly could be. and, even if the much of the business of TSMC survived the war, the PRC's victory would be more so. The victor might simply seize the assets as 'spoils'. 

Possibly so.  But investors could well be making a probabilistic judgment.  Suppose the possibility of such an apocalyptic result of the US election for Taiwan and TSMC were, simply, 10 percent. That would weigh on the company but would not reduce the present value of its stock to zero. We may simply have seen the discounting of the market value of a stock that took, say, 12% off.  After election day, the market decided odds of total destruction weren't quite so bad, they are 10%.  Hence the bounce. 

It is all rather refreshingly normal. 

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