Tensions with the U.S. are pushing into the Chinese chipmaker’s stock market

Semiconductor chips are seen on a computer circuit board in this illustration picture taken February 25, 2022. REUTERS/Florence Lo/Illustration

SHANGHAI, Aug 5 (Reuters) – Shares in Chinese chipmakers jumped to a two-year high this week as House Speaker Nancy Pelosi’s visit to Taiwan raised tensions with the U.S., sending patriot bets on an area Beijing sees as key to its competition with Washington.

The uptick in chipmaker stocks, which have lost more than a third of their value in the past year on valuation concerns, came after the US Senate last week passed the Chips and Science Act to compete better china read more

China’s semiconductor index (.CSIH30184) rose 6.8 percent on Friday to a four-month high, taking the week’s gain to 14.2 percent, its best weekly performance since mid-2020.

Although the US Chip Act would further restrict the use of advanced US technologies in China, while prompting more semiconductor investment in the US, some investors interpret it as good news for local Chinese players.

“Domestic chipmakers will have huge opportunities to replace imported products,” said Niu Chunbao, chief investment officer at private equity house Wanji Asset, adding that local players could see explosive growth.

That view was echoed by Guorong Securities, which said in a note that the US chip law “will boost the growth of China’s semiconductor industry.”

Shares in Shenzhen China Micro Semicon Co Ltd ( 688380.SS ) surged 82% on the first day of trading in Shanghai, bucking weaker recent market debuts.

Chinese chip giant Semiconductor Manufacturing International Corp (SMIC) jumped 7.1 percent in Hong Kong and 4.4 percent in Shanghai. The SSE STAR Chip Index (.STARCHIP) rose 8.3%.

But Chinese chipmakers are expensive compared to their global peers at a time when the prospect of a global economic downturn threatens chip demand.

The global industry, which suffered from supply chain disruptions during the height of the COVID-19 pandemic, is now facing weak demand as fears of inflation and recession reduce orders for chips used in everything from cars to cellphones phones.

The China sector trades at around 57 times earnings and remains the most expensive sector on China’s stock market.

Reporting by Jason Xue, Samuel Shen and Brenda Goh. Edited by Alexander Smith

Our Standards: The Thomson Reuters Trust Principles.