Strategy Note /

Taiwan: TSMC spikes after Intel failure, now 5.1% of MSCI EM index

  • Intel admitted delays in 7-nanometer chip production (following its 10nm delays) and a strategic u-turn on outsourcing

  • TSMC, outsourced chip manufacturing leader with over 50% share, is already on 7nm and should start on 5nm by end 2020

  • TMSC consensus already positive (rated Buy by 80% of the sell-side), trailing PE (22x) is at 50% premium to 5yr median

Taiwan: TSMC spikes after Intel failure, now 5.1% of MSCI EM index
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
26 July 2020
Published byTellimer Research

Intel's market capitalisation fell by about US$40bn after its quarterly call (23 July night) while TSMC rose by almost an equivalent amount.

TSMC shares are up 12% ytd and it now accounts for over 5% of the MSCI EM index on its own. Its performance ytd is in line with the two largest EM stocks, Alibaba and Tencent. TSMC forward consensus PE is about 22x (compared to the recent peak of 26x at the end of 2019).

The broad tech rally posted amid accelerated penetration due to Covid-19, continuing market share gains for TSMC, and, now, Intel's failure, have offset concerns related to slower global growth and increasing tension between the US and China and between China and several of its neighbours (both in terms of the general risk to Taiwan's sovereignty and unobstructed access to sea and air transit, as well as in terms of specific risk to TSMC orders from Huawei).

Inflows related to EM passive funds and ETFs may drive an additional leg up in TSMC in the short-run, but its valuation arguably provides little compensation for those concerned about the trajectory of US-China relations.

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