Tensions with U.S. spur China to buy chip-making stocks

In this illustration picture taken on February 25, 2022, semiconductor chips are seen on the circuit board of a computer. REUTERS/Florence Lo/Illustration

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SHANGHAI, Aug 5 (Reuters) – Shares in Chinese chipmakers posted their biggest gain in two years this week as U.S. House Speaker Nancy Pelosi’s visit to Taiwan intensified tensions with the United States, boosting interest in an industry Beijing sees as key to its competition patriotic bet with Washington.

After the U.S. Senate passed the “Chip and Science” bill last week to better compete with China, interest in chip-making stocks has shrunk by a third over the past year due to valuation concerns above.read more

The China Semiconductor Index (.CSIH30184) rose 6.8% on Friday to a four-month high, bringing its weekly gain to 14.2%, its best weekly performance since mid-2020.

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While the U.S. Chip Act will further limit the use of advanced U.S. technology in China while spurring more semiconductor investment in the U.S., some investors see it as good news for local Chinese companies.

“There will be huge opportunities for domestic chip companies to replace imported products,” said Niu Chunbao, investment director of private equity firm Wanji Assets, adding that local companies could experience explosive growth.

This view was echoed by Guorong Securities, which said in a report that the U.S. chip law would “stimulate the development of China’s semiconductor industry.”

Shares of Shenzhen Zhongwei Semiconductor (688380.SS) surged 82% on its first day of trading in Shanghai, in stark contrast to the weakness in recent stock market debuts.

Chinese chipmaker SMIC rose 7.1 percent in Hong Kong and 4.4 percent in Shanghai. The Shanghai STAR Market Index (.STARARCHIP) soared 8.3%.

But Chinese chipmakers are expensive compared to their global peers at a time when the prospect of a global recession threatens chip demand.

Global industries that suffered supply chain hurdles at the height of the COVID-19 pandemic are now facing weak demand as inflation and recession fears reduce chip orders for everything from cars to mobile phones.

At around 57 times earnings, the China sector remains the most expensive sector in the Chinese stock market.

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Reporting by Jason Xue, Samuel Shen and Brenda Goh; Editing by Alexander Smith

Our standard: Thomson Reuters fiduciary principles.

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