Despite the geopolitical bickering between America and China, Monday is shaping up to be a great day to own Chinese stocks. At the start of the session this morning, the actions of the web portal Sohu.com (NASDAQ: SOHU) and his Sogou (NYSE: SOGO) search engines increased by 38.6% and 46.1% respectively. Across the Strait in Taiwan’s chipmaking giant Taiwan Semiconductor Manufacturing Company (NYSE: TSM) is up 9.4% as of 10 a.m. EDT.
However, the reasons why these stocks are increasing couldn’t be more different.
None of the above stock movements, you see, have anything to do with the Trump administration’s decision last week to close a Chinese consulate in Houston – nor with the Chinese response, which closed a US consulate in Chengdu.
The appreciation of the share price in Sogou, and by extension in Sohu, is rather due to a “preliminary and non-binding” offer from Tencent Holding (OTC: TCEH.Y) to acquire all of the outstanding search engine shares, including all American Depositary Shares (ADS) traded in the United States, for a price of $ 9 per ADS. The offer, if accepted, Sogou said, would transfer the company from Sohu’s ownership to Tencent, making Sogou “a wholly-owned private and indirect subsidiary of Tencent.”
In completely independent news, Intel (NASDAQ: INTC) revealed last week that it is struggling to get its new line of 7-nanometer chips ready for production, and that production appears to be delayed by about six months. To shorten that delay, the company said it could hire a contract manufacturer to help with production. Taiwan Semiconductor stock jumped last week on this news and the belief that TSM would be a logical choice to serve as a subcontractor. Today, it jumps again while this theory has been validated. The Tech DigiTimes newspaper reports that Taiwan Semiconductor actually has “a great chance to be one of the partners.”
In the case of Sohu-Sogou-Tencent story, it should be noted that Sogou says he just received the offer from Tencent and “has not made any decision regarding the proposal letter and the proposed transaction” . Moreover, Sogou warns that “there can be no assurance that Tencent [even] make a final offer to Sogou, “and even less that a sale will be consumed. For this reason, Sogou advises investors not to trade on the news until he has made such a decision – advice that investors casually toss to the wind this morning.
In the case of semiconductor companies, a similar caution may be warranted. First and foremost because Intel has not confirmed that it will hire Taiwan Semiconductor to make chips for it. And secondly, even if it does, DigiTimes seems to suggest that TSM may only be one of several such contractors, and even then, only for a period of time.
TSM doesn’t get all of Intel’s business in perpetuity, in other words. Don’t trade stocks the way you think.