How China Could Respond If Nancy Pelosi Visits Taiwan — And The Stocks To Watch

The possibility of an unconfirmed visit to Taiwan by U.S. House Speaker Nancy Pelosi is causing tension to rise between the U.S. and China.

If Pelosi were to consummate her visit, the event could have a negative impact on assets and stocks associated with China and Taiwan. Companies and sectors that depend on peaceful relations between the U.S. government and the Chinese Communist Party could take a hit.

Is She Coming Or Not?

Although the official itinerary on Pelosi’s Asia tour only includes Singapore, Malaysia, South Korea and Japan, several reports have mentioned the speaker also plans to visit Taiwan, including a senior Taiwanese government official and a U.S. official.

The congressional delegation led by Pelosi launched its Indo-Pacific tour on Monday in Singapore. An exact date of when the visit to Taiwan would occur has not been confirmed, though some sources claim the delegation could be arriving in Taiwan’s capital of Taipei on Tuesday night.

Due to security concerns, it's not unlikely that a visit to Taiwan would be omitted from the public itinerary and, according to representatives from the Biden administration Pelosi is expected to proceed with the visit, regardless of threats by the Chinese military.

What Could China Do?

A visit to Taiwan by the third most important representative of the U.S. government would be a clear sign of diplomatic efforts to strengthen ties between the U.S. and Taiwan, a sovereign island country to which China claims full sovereignty.

The event would mark the highest-levet visit by a U.S. official in 25 years.

The extent to which China could respond to such a visit is unclear, but military action is not off the table.

During a regular briefing on Monday by the Chinese foreign ministry, spokesman Zhao Lijian called attention to the "egregious political impact" that the visit could have and said that China’s military "is standing by."

"China will take resolute responses and strong countermeasures to defend its sovereignty and territorial integrity," Lijian said.

Taiwan’s unique expertise in the manufacturing of technological products — most notably semiconductors — makes it a strategic ally in any plan surrounding the production and commercialization of consumer electronics, cars and a wide range of products.

Tension between the U.S. and China around the island country’s sovereignty has been escalating during the past few years, and a visit by a high-level U.S. official could be read by China as an unwelcome invasion to its own territory.

U.S. officials said it is unclear just how far China was willing to risk a confrontation around this issue, but they had collected intelligence on China’s likely responses.

On Saturday, the Chinese military announced that it would conduct drills using live ammunition about 80 miles from Taiwan, in the waters off southeastern Fujian Province, possibly as a way to demonstrate its ability to defend Taiwan’s territory should a conflict emerge.

Which Stocks Could Be Affected?

U.S.-China tensions have historically been behind moves in stock prices of companies that depend on peaceful relations between the two countries for their business.

After the prospect of the congressional visit, the Taiwan dollar fell below the psychological mark of 30 per dollar for the first time since June 2020.

Stocks from companies and funds with a stake in the matter didn’t show a consistent or significant up or down pattern Monday. 

The Taiwan Semiconductor Manufacturing Company TSM, Taiwan’s largest U.S.-traded company by market cap, was down 2.6% at the time of the writing.

The Taiwan Capitalization Weighted Stock Index, following ​​companies traded on the Taiwan Stock Exchange, was down 0.1%.

Hon Hai Precision Industry Co., a Taiwanese manufacturing company known internationally as Foxconn, was up 0.5% on the Taiwan Stock Exchange.

Taiwanese semiconductor manufacturer MediaTek Inc. was up 1.6% on the same exchange.

Blackrock’s iShares MSCI China ETF MCHI, an exchange-traded fund providing exposure to large and mid-sized companies in China was down 3.3%.

Benzinga’s Take: As Pelosi's visit continues to be a possibility rather than a fact, the markets have not yet taken it as doomsday news. Yet if the visit were to actually occur, the rise in tension would likely result in instability across the stocks listed above and others in the China and Taiwan spheres.

Photo by Brian Birzer on WIkimedia Commons.