Since last week the media has published videos and Chinese politicians' statements about the Chinese military drills near Taiwan. Taiwan has also conducted military exercises and preparatory work with the civilian population in the event of an attack. On August 3, the NYT, quoting Chinese state media, published an article about the following Chinese military drills scheduled on August 4 and a place of exercises. Chinese media offered five swaths of the sea surrounding Taiwan. If true, it can be a hostile act, possibly igniting conflict between China and unrecognized Taiwan. Both countries are essential for the world economy, meaning the conflict would affect markets. I hope it will not happen. However, this risk urged me to start a series of posts 'What would happen to asset_name if China attacks Taiwan?'
A brief: China is the second economy in the world by nominal GDP. China is the main trading party for the US, Europe, and many other countries and regions.
Taiwan is the heart of semiconductor manufacturing for all industries around the world.
Bearing this in mind, recall that S&P 500 is a world barometer of economic health or a barometer of the capital markets financial system. The index has a diverse base of constituents representing the American economy. Companies from the index have business with China: manufacturing, trade, intangible assets, and financial transactions. Besides, Taiwan is the leading supplier for many American manufacturing companies working in consumer durables, communication, electronic technology, and producer manufacturing. The conflict would directly affect negatively on most American companies. It could slow economic growth (I think it would be a recession) and create much bigger supply problems than the 2021 supply chain crisis. Companies that heavily relied on Taiwan semiconductors would experience issues first. For instance, it could be
AAPL
,
TSLA
, and
AMD
.
We do not know what kind of sanctions the US and its allies will impose on China. The next dropping wave of the index could happen if it is the anti-Russian-style sanctions. China is not only the biggest exporter of goods but the most prominent importer of commodities. Heavily relied on fossil fuels. For example, the US government may prohibit American oil and gas exports to China, causing damage to American O&G companies.
Regarding retail and non-durable, they also depend on imports from China. So I believe prices of utility stocks could be steady in a storm. I also thought about Air & Defence, but it could have heavily relied on Taiwanese and Chinese imports. Perhaps a few companies are not dependent on Asian supplies in the sector, but the whole industry is vulnerable. I do not want to bury deep into fundamentals cause the article is about the index.
Let's look at the chart. I estimate the potential conflict would hurt the index dramatically. The first target is 3700; semiconductor-dependent companies would drive the index drop by more than 10%. The following support is on 3200. The best instruments for the trading idea are put options with the corresponding strikes. For futures traders, I suppose 4200 is a stop-loss. Timing for the trade matters much. I believe that options with an end-of-month expiration date could be good. The position holding period is 7 days to next Thursday. However, we do not know the date. Solely China knows the exact date if the plan exists. The risk could realize during the next 7 days or be postponed to next month or even later.
Here I will pause because it is hard to forecast how long Taiwan can fight and what sanctions will be imposed. I doubt that sensitive restrictions would be imposed during the first days. I also doubt that the US will impose harsh sectoral sanctions if China takes over Taiwan quickly.
I wish you peace!
Thank you for your reading, and have profitable trading! Comment your thoughts!
A brief: China is the second economy in the world by nominal GDP. China is the main trading party for the US, Europe, and many other countries and regions.
Taiwan is the heart of semiconductor manufacturing for all industries around the world.
Bearing this in mind, recall that S&P 500 is a world barometer of economic health or a barometer of the capital markets financial system. The index has a diverse base of constituents representing the American economy. Companies from the index have business with China: manufacturing, trade, intangible assets, and financial transactions. Besides, Taiwan is the leading supplier for many American manufacturing companies working in consumer durables, communication, electronic technology, and producer manufacturing. The conflict would directly affect negatively on most American companies. It could slow economic growth (I think it would be a recession) and create much bigger supply problems than the 2021 supply chain crisis. Companies that heavily relied on Taiwan semiconductors would experience issues first. For instance, it could be
AAPL
,
TSLA
, and
AMD
. We do not know what kind of sanctions the US and its allies will impose on China. The next dropping wave of the index could happen if it is the anti-Russian-style sanctions. China is not only the biggest exporter of goods but the most prominent importer of commodities. Heavily relied on fossil fuels. For example, the US government may prohibit American oil and gas exports to China, causing damage to American O&G companies.
Regarding retail and non-durable, they also depend on imports from China. So I believe prices of utility stocks could be steady in a storm. I also thought about Air & Defence, but it could have heavily relied on Taiwanese and Chinese imports. Perhaps a few companies are not dependent on Asian supplies in the sector, but the whole industry is vulnerable. I do not want to bury deep into fundamentals cause the article is about the index.
Let's look at the chart. I estimate the potential conflict would hurt the index dramatically. The first target is 3700; semiconductor-dependent companies would drive the index drop by more than 10%. The following support is on 3200. The best instruments for the trading idea are put options with the corresponding strikes. For futures traders, I suppose 4200 is a stop-loss. Timing for the trade matters much. I believe that options with an end-of-month expiration date could be good. The position holding period is 7 days to next Thursday. However, we do not know the date. Solely China knows the exact date if the plan exists. The risk could realize during the next 7 days or be postponed to next month or even later.
Here I will pause because it is hard to forecast how long Taiwan can fight and what sanctions will be imposed. I doubt that sensitive restrictions would be imposed during the first days. I also doubt that the US will impose harsh sectoral sanctions if China takes over Taiwan quickly.
I wish you peace!
Thank you for your reading, and have profitable trading! Comment your thoughts!
Order cancelled:
China said it concluded drills yesterday, so I canceled the geopolitical idea. I estimate that the long-term risk of the event exists.
Trade closed manually
