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CHINA, To Much Dependence

CHINA, To Much Dependence
July 6, 2023

Yet opportunity

China makes just about everything we use on a daily basis. Designed to be that way, China enticed manufactures back in the ‘70’s, ‘80’s and ‘90’s to move manufacturing to China with cheap labor, increase in margins and profits. It worked. Now China holds the keys to the manufacturing castle.

Yesterday the news came out that China will restricted the amount of germanium and gallium exports starting August 1st. What is gallium and germanium?

“Gallium is mainly used in the electronics industry to produce heat-resistant semiconductor wafers that can operate at higher frequencies. Germanium, on the other hand, is used in fibre optic cables and is essential in the defence and renewable energy sectors.", according to The Economic Times. (take in account that this a translated to English if you decided to read this article)

China produces 60% of the germanium in the world according to Critical Raw Materials Alliance. The rest comes from Canada, Finland, Russia and the US. 80% of gallium is produced by China.

I find all of this ironic that these restrictions come out just as the semiconductor, AI headline rush has been driving company’s such as #Nvidia and others higher for the last 6 months. China may not shoot missiles at the US, Finland, Germany, Netherlands, France, the leaders in imports of both germanium and gallium, but they can play economic warfare.

So what does this mean for the Nvidia’s, AMD’s, semiconductor and fiber optic company’s of the world? Probably a temporary drop in the stock prices driven by the headline news of this event. But also a possible buying opportunity.

NVIDA…only down $0.92 in premarket

Chart

Markets and the true world economics' work in silos. They are have come disconnected from one another. So if your a long-term investor, consider that the headlines drive much of the markets movements. Presently NVIDA trades at a P/E ratio of 220. The last time I saw such great P/E numbers was during the DOT.COM era.

My suggestion…keep some of those profits this time.

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