The escalating geopolitical tensions between Xi Jinping’s China and Taiwan pose a “common risk” to the Magnificent Seven tech giants, according to Jeremy Grantham’s GMO.
What Happened: The Magnificent Seven, comprising Apple Inc. AAPL, Amazon.com Inc. AMZN, NVIDIA Corporation NVDA, Tesla Inc. TSLA, Meta Platforms Inc. META, Alphabet Inc. GOOG GOOGL, and Microsoft Corporation MSFT, could face a significant threat due to a potential geopolitical event in China.
In a letter to investors, GMO, co-founded by market veteran Grantham, highlighted the risk of a disruptive geopolitical event in China, which could lead to a reduction in access to China and Taiwan’s chip industries that are crucial for the development of technologies such as artificial intelligence, reported Business Insider
“A geopolitical event that hurts U.S. companies’ access to China, Taiwan, and the semiconductor industry would therefore be profoundly uncomfortable for this group of companies,” wrote GMO’s Ben Inker and John Pease.
These companies also have an average revenue exposure of nearly 20% to China and Taiwan, with four of them having ties to Taiwanese manufacturing giant Foxconn. The increasing investment in AI by these companies has further heightened their reliance on Taiwan, the world’s leading chip supplier.
“Investors who are averse to the 4% combined weight of China and Taiwan in MSCI ACWI should be mindful of the 17% combined weight of the U.S. superstars in that same index,” GMO wrote.
Why It Matters: The tension between China and Taiwan has been escalating, with China last month reportedly sending 33 military aircraft and six naval ships toward Taiwan, potentially complicating efforts to stabilize relations amid U.S.-China talks.
Meanwhile, Taiwan halted new group tours to China earlier this month in response to Beijing’s refusal to allow Chinese tourists to visit Taiwan and a controversial flight path change in the Taiwan Strait, which Taiwan sees as a potential military threat.
Read Next: China Slams Antony Blinken For Sending ‘Gravely Wrong’ Signal By Congratulating New Taiwan Leader
Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
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