Geopolitical squabbles between America and China notwithstanding, Monday is looking like a great day to own Chinese stocks. In early trading this morning, shares of web portal Sohu.com (SOHU 3.86%) and its Sogou (SOGO) search engine are surging 38.6% and 46.1%, respectively. Across the strait in Taiwan, chip manufacturing giant Taiwan Semiconductor Manufacturing Company (TSM 1.24%) is up a strong 9.4% as of 10 a.m. EDT.
The reasons these stocks are surging, however, 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 down a Chinese consulate in Houston -- nor with the Chinese response, which closed a U.S. consulate in Chengdu.
Rather, the stock price appreciation at Sogou, and by extension at Sohu, owes to a "preliminary, non-binding" offer from Tencent Holding (TCEHY 0.12%) to acquire all outstanding shares of the search engine, including all American Depositary Shares (ADS) traded in the U.S., for a price worth $9 per ADS. The offer, if accepted, says Sogou, would transfer the company from Sohu's ownership to Tencent's, making Sogou "a privately held, indirect wholly owned subsidiary of Tencent."
In entirely unrelated news, Intel (INTC 5.47%) revealed last week that it's having trouble getting its new line of 7-nanometer chips ready for production, and that production looks to be delayed by about six months. To abbreviate that delay, the company said it might hire a contract manufacturer to help it with production. Last week, Taiwan Semiconductor stock jumped on this news, and on the belief that TSM would be a logical choice to serve as said subcontractor. Today, it's jumping again as that theory was validated. Tech newspaper DigiTimes is reporting that Taiwan Semiconductor does in fact have "a high chance to be one of the partners."
In the case of the Sohu-Sogou-Tencent story, it's worth noting that Sogou says it has only just received Tencent's offer and "has not made any decisions with respect to the Proposal Letter and the Proposed Transaction." For that matter, Sogou cautions that "there can be no assurance that Tencent will [even] make any definitive offer to Sogou," much less that a sale will be consummated. For that reason, Sogou is advising investors not to trade on the news until it has made such a decision -- advice investors are casually tossing to the wind this morning.
In the case of the semiconductor companies, similar caution may be warranted. First and foremost because Intel has not confirmed it will hire Taiwan Semiconductor to make chips for it. And second, even if it does, DigiTimes seems to be suggesting that TSM will be only one of perhaps several such subcontractors, and even then, only for a period of time.
TSM's not getting all of Intel's business in perpetuity, in other words. Don't trade the stock like you think it will.