Finimize - 🥶 Brits get a hike and a recession

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Today's big stories

US and allies look to form semiconductor alliances to outpace China
Ray Dalio doesn’t like the look of stocks – Read Now
Bank of England lifts rates to 14-year high and admits UK's in a recession

US And Allies Chip In To Outpace China

What’s Going On Here?

The US, Japan, South Korea, and Taiwan are forming chip-making alliances in a bid to stay one step ahead of China.

What Does This Mean?

Chip shortages don’t refer to empty bags of Doritos – they’re what happens when clogged supply chains slow the distribution of oh-so-precious semiconductors or “chips”. The resulting scarcity has been a headache for loads of industries that need chips for their products. On top of that, tensions with China have raised the stakes. See, Taiwan is home to TSMC, the world's largest and most advanced chipmaker, and the US and its allies are terrified that China could wrest control of the firm through an invasion. So it’s no surprise that China’s rivals are discussing their options. On Thursday details emerged of a US-proposed alliance that would bring together four semiconductor powerhouse partners, strengthening the hand of China’s rivals (tweet this).

Why Should I Care?

Zooming out: Pockets of power.
The problem with the chip industry is that there’s too much power in too few hands. TSMC dominates the manufacturing market; Dutch firm ASML is the reigning champ in advanced machinery, and Cadence Design and Synopsis have carved up the market for chip-design software between them. It’s A-OK for a few big players to rule the supply chain when all’s well in the world. But when geopolitical tensions start rumbling, semiconductor foundations start to look very shaky.

For you personally: Lessons for investors.
Every couple of years, a better chip hits the market – and if it happens to be yours, you’re onto a winner. Your market-leading chips will sell like hotcakes, netting you a tidy profit that you can re-invest, ensuring that the next chip’s even better. This pattern’s common in fast-moving industries, and explains the success of tech mega-corporations. But, although backing tech winners is usually a profitable strategy, canny investors know that innovative rivals and geopolitical upheavals are always lurking, ready to dethrone complacent reigning champs.

You might also like: How to protect your portfolio as Taiwanese tensions rise.

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Analyst Take

Why Dalio And Bridgewater See Stocks Falling A Lot More

Stéphane Renevier, Analyst

If you’ve been wondering how quickly stocks might return to their most recent peak, Ray Dalio and his Bridgewater research team have a message for you: slow down.

Stocks aren’t even done falling yet.

See, stocks tend to fall in two stages when interest rates rise. And the first stage might still be playing out…

That’s today’s Insight: why Ray Dalio sees stocks falling a whole lot more.

Read or listen to the Insight here

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