Geopolitical Risks from China
The geopolitical situation surrounding Taiwan poses a significant risk for investors, particularly due to Taiwan’s central role in the global semiconductor industry. Taiwan, as the “chip center,” produces the majority of the world’s most advanced microchips, primarily through companies like TSMC (Taiwan Semiconductor Manufacturing Company). These chips are essential for numerous high-tech products and industries globally.
China considers Taiwan a part of its territory and has repeatedly threatened military action if peaceful reunification is not possible. The threat of invasion is assessed as high by US military officials; according to the US Secretary of Defense, China is preparing to be capable of carrying out an invasion of Taiwan by 2027. Even without an actual invasion, a blockade of Taiwan could severely disrupt global financial markets, as the supply of critical semiconductors would be massively affected.
Protective Mechanisms and Economic Dependencies
Taiwan utilizes its economic significance as a “Silicon Shield”: China’s and other countries’ dependence on Taiwanese chips makes a military attack a risky endeavor. Additionally, TSMC is also investing in factories outside Taiwan (e.g., in the USA or Germany), but these facilities cannot fully replace production on the island. Militarily, Taiwan relies on defense strategies such as anti-access and area denial systems (“porcupine” strategy) to fend off attacks.
Tips for Protecting Investments Given These Risks
- Diversification: Avoid concentrations in companies or sectors with a strong reliance on Taiwanese chip production or generally from the Asia-Pacific region.
- Investment in Alternative Supply Chains: Focus on companies that diversify their production or expand their own manufacturing capabilities outside Taiwan.
- Hedging Against Market Risks: Utilize hedging instruments such as options or funds focusing on crisis resilience.
- Maintain a Long-Term Perspective: Despite short-term risks, the demand for semiconductors remains high; long-term investments in innovative chip producers could be rewarding.
- Monitoring Political Developments: Stay informed about political tensions in the Indo-Pacific region, as well as measures by Western countries to strengthen their own chip industries (e.g., subsidies for TSMC factories outside Taiwan).
In summary, Taiwan, due to its key role in the global technology market, is a small country with significant influence – but also great risk for investment portfolios in light of the ongoing threat from China. A wise investment strategy actively considers this geopolitical dimension.