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The latest escalation in tensions over Taiwan has prompted a flurry of rethinking and de-risking. While most global businesses are unlikely to pull up stakes, experts warn that investors aren’t accounting for the growing risks and potential costs as the U.S.-China relationship frays.
China, unhappy over a recent visit by a U.S. congressional delegation, responded with live-fire military exercises around Taiwan, a key chip-making hub. Few see an imminent Chinese move on Taiwan, which would inflict a catastrophic hit on the global economy, including China. But strategists predict increased minicrises and a more militarized Asia-Pacific. C suites and boards can no longer ignore it, says Jude Blanchette, the Freeman Chair in China Studies at the Center for Strategic and International Studies. “We knew it would be a flashpoint, but it’s firmly moved to smack dab in the middle.”
Dale Buckner, head of security consultancy Global Guardian, has been hearing from companies about creating contingency plans, which include shifting investment, building supply-chain resilience, infrastructure risks, and talent issues. “Over the next 12 to 24 months, there’s a good calculus for nothing happening. But if you are an investor and only looking at the next 18 to 24 months, you aren’t a good investor,” he says.
“You have to be mindful of your China exposure—and quite often it isn’t in China,” says Harry Melandri, an adviser at macroeconomic research firm MI2 Partners. “A Chinese exporter locked out of the U.S. market could prompt a Chinese importer [not to buy] American,” he says. “We will see more of that.”
Last Week
Powell Shock
A four-week stock rally and anxieties over what Federal Reserve chief Jerome Powell would say at Jackson Hole weighed down stocks. Retail earnings were weak, new-home sales fell, and global business activity slowed. President Biden announced a federal student-loan forgiveness program, and July inflation actually eased. On Friday, Powell gave a short talk on how long it could take to quell inflation, and shares plunged. On the week, the
Dow Jones Industrial Average
was off 4.22%, to 32,283.40; the
S&P 500
lost 4.04%, to 4057.66; and the
Nasdaq Composite
shed 4.44%, to 12,141.71.
Earnings Beat
Nordstrom
and
Macy’s
slashed forecasts for the year, as second-quarter earnings season neared its end.
Bed Bath & Beyond
required financing to shore up liquidity. Zoom Video missed expectations again and fell to single-digit growth. Peloton lost more than a billion.
Dollar General
beat, and
Dollar Tree
did not.
A Bombing in Moscow
A Russian journalist and daughter of a pro-Putin ideologue was killed in a car bombing outside Moscow. Russia blamed Ukraine, which denied any role, as the war passed its six-month mark and Ukraine celebrated independence from the Soviet Union. Russian advances stalled, which Moscow explained as a humanitarian pause. Shelling took a Ukraine nuclear reactor off the grid temporarily. Ukraine and Russia blamed each other.
Targeting ESG
Republicans declared war on environmental, social, and governance scoring. In Florida, Gov. Ron DeSantis banned state pension funds from ESG screening. Texas blacklisted 10 firms, including BlackRock and UBS, and 348 ESG funds, claiming they were “boycotting energy companies.” And Arizona senatorial candidate Blake Masters called ESG an existential threat to America.
Dragons Fly
HBO’s House of Dragons, the prequel to Game of Thrones, racked up 10 million viewers on its debut, a record for the network. Demand was so great that thousands of U.S. online viewers experienced crashes. In md-August,
Warner Bros. Discovery
’s
HBO laid off 70 employees, 14% of its head count, mostly from streaming service HBO Max.
Annals of Deal Making
The U.S. and China struck a deal on sharing audits of New York–listed Chinese companies…Movie theater chain
Cineworld
said that it is considering bankruptcy…The Wall Street Journal reported that
Amazon.com
was among the bidders, which include CVS Health, for home health-care company
UnitedHealth
may also be circling…Elon Musk subpoenaed documents from former Twitter CEO Jack Dorsey, and a former Twitter security chief said the company misled regulators…Penn Entertainment agreed to buy the two-thirds of Barstool Sports it didn’t already own for $387 million…Julian Robertson, founder of Tiger Management and mentor to Tiger Cubs hedge funds, died at 90.
Write to Reshma Kapadia at [email protected]
