Why OGM is bullish on Taiwan’s TSMC


But GMO’s Mr Hancock thinks there is very little chance of an invasion. “We don’t think there is more than a 10% chance that China will invade Taiwan in the next 2-3 years,” he said.

TSMC depends on inputs from American and European semiconductors, which could easily be cut off from any Chinese usurpation.

“What people miss is that China has bigger challenges than the United States in terms of supply chain vulnerability,” Hancock said. “The supply chain crosses the Pacific in both directions, and anyone making chips, including TSMC, uses equipment made by people like Lam Research. [in the US] or ASML [in the Netherlands].

“So it wouldn’t be in China’s interest to invade Taiwan and take over TSMC.”

Approximately 3% of the GMO Quality Fund portfolio is invested in Lam Research, which is a leading supplier of wafer fabrication equipment to the semiconductor industry.

Mr Hancock said if supply chains smoothed out and there were no geopolitical issues, the semiconductor industry would grow and TSMC would be even more valuable.

“Demand for semiconductors has exceeded supply. It takes months to make a chip and much longer to increase capacity. For automakers, it’s different from what they’re used to. It’s not like other components where GM can say “jump” and ask its suppliers “how high?”.

Last week, Morgan Stanley upgraded TSMC with expectations of better earnings.

Mr Hancock said Mr Grantham sets the tone for GMO’s strategy, but there were distinctions in how GMO staff invested.

“Jeremy is a strategist and architect of our investment philosophy, but he is not involved in portfolio management. He believes there is a very large market bubble. We believe that any bubble is more limited to certain areas and that there are still great opportunities to invest in high quality companies.

“We’ve seen clients who still want to maintain a growth allocation but are cautious about the overall valuations allocated to our quality strategy.”

The GMO Quality Fund currently holds no Australian stocks, although it views Atlassian, ResMed and CSL favourably.


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