Finimize - 🇨🇳 Evergrande 2.0

What’s going on here?

TSMC released results on Thursday that suggested the world’s biggest chipmaker may be about to free itself from the shackles of a demand downturn.

What does this mean?

The chip industry slump is taking no prisoners, and Taiwanese firm TSMC – which makes tiny slabs of silicon for basically every chip designer on the planet – has been well and truly confined. Gadget designers have been slowing production in the face of slowing demand, and that’s bad news for TSMC: the firm’s profit was down 25% last quarter from the same time last year. That’s the second quarter in a row where profit had dipped from the year before – a pattern TSMC hasn’t seen for four years. But get this: those results were actually better than analysts expected, and it’ll only help that TSMC suspects recovering Chinese demand could end the slump sometime soon.

Why should I care?

Zooming out: Chipmakers have a sixth sense.

Artificial intelligence has given Big Tech firms the strength to hoist indexes higher this year, so investors are probably hoping the sector can take the lead again next year. Chipmakers are important to watch, then, because often they’re the first to know when the climate’s changing, picking up on consumer demand and activity in a bunch of tech areas. So with both TSMC and chip equipment maker ASML saying the clouds might be parting, the broader industry – and in turn, the market as a whole – could be in for some milder weather.

The bigger picture: Big fish, big pond.

Only a few firms are capable of making the most advanced chips, so when chip designers have a job to send out, there’s a high chance TSMC will be on the receiving end. That means the chipmaker is a leader in the industry and all the trends that come with it, including artificial intelligence advancements. But those pros aren’t without cons: the industry’s volatile and heavily sensitive to geopolitical tensions between China and Taiwan.

What’s going on here?

Country Garden failed to pay interest on its US dollar bonds before the given deadline, making it the latest victim of China's languishing property sector.

What does this mean?

Country Garden was China’s biggest property developer by sales until recently. But this is not the firm’s shining moment, having just missed a $15 million coupon payment on a key bond. That almost guarantees an imminent default, forcing China into one of its most significant corporate debt restructurings since it dealt with infamous developer Evergrande. But unlike Evergrande, Country Garden was thought to have strong financial underpinnings before this default. In fact, it was one of only a few high-profile developers to tick the box on three debt-based criteria set back in 2021. Evergrande, meanwhile, failed all three. Country Garden’s default, then, could be a worrying sign that the property market’s cracks are deepening.

Why should I care?

For you: The center of our universe.

China’s embattled property sector serves as a stark reminder that the real estate market is volatile. House prices can fall unexpectedly, excess debt can backfire massively, and government interference can help or hinder. And remember, the housing market underpins many economies: houses are most folks’ biggest asset, so property prices play a major role in consumer confidence and, as a result, spending on household goods like gadgets and furniture. Plus, major construction companies only thrive when the market’s in a good spot.

The bigger picture: Bonds have problems too.

Bonds have a reputation for being a less volatile option than stocks, but even they come with plenty of risk. Country Garden’s dollar bonds, for example, have fallen from $0.70 at the start of the year to a mere $0.06 now. And sure, bondholders could pick up some spare change when the company’s debt is restructured, but there will be plenty of obstacles and losses along the way.