August 12, 2022

Semiconductor chips are seen on a computer circuit board in this illustrative image taken on February 25, 2022. REUTERS/Florence Law/Illustration

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SHANGHAI (Reuters) – Shares of Chinese chipmakers jumped by the most in two years this week as House Speaker Nancy Pelosi’s visit to Taiwan escalated tensions with the United States, raising national bets on a sector Beijing sees as key to its rivalry. with Washington.

The surge in interest in chip maker stocks, which have lost more than a third of their value over the past year due to valuation concerns, came after the US Senate last week passed a “chips and science” law to better compete with China. Read more

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

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Although the US Chip Act would restrict the use of advanced US technologies in China while urging more investment in semiconductors in the US, some investors interpret it as good news for local Chinese players.

“Local chip makers will have huge opportunities to replace imported products,” said Niu Chunbao, investment director at private finance house Wanji Asset, adding that local players could see explosive growth.

This view was echoed by Guorong Securities, which said in a note that the US chip law “will stimulate the development of China’s semiconductor industry.”

Shares in Shenzhen China Micro Semicon Co Ltd (688380.SS) were up 82% on their first trading day in Shanghai, reversing a weaker stock market appearance recently.

The giant Chinese semiconductor chip maker jumped 7.1% in Hong Kong and 4.4% in Shanghai. The SSE STAR Chip Index (.STARCHIP) rose 8.3%.

But Chinese chip makers are expensive compared to their global counterparts, at a time when the prospect of a global economic recession threatens chip demand.

The global industry, which suffered from supply chain hurdles during the height of the COVID-19 pandemic, is now facing weak demand as inflation and recession fears dampen orders for chips used in everything from cars to mobile phones.

The Chinese sector is trading at about 57 times earnings, and is still the most expensive sector in the Chinese stock market.

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(Additional reporting by Jason Zeu, Samuel Sheen and Brenda Goh.) Editing by Alexander Smith

Our criteria: Thomson Reuters Trust Principles.

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