How the Lack of Computer Chips is Impacting the Markets

While Covid-19 was a health crisis at its core, this entity has continued to have a profound economic impact across the globe.

This is best borne out by the global oil market, which is currently experiencing a surfeit of demand while production levels remain noticeably flat (creating a scenario where oil prices continue to rise at an exponential rate).

This is also underpinning a worldwide semiconductor shortage, which is in turn impacting the global stock and financial markets. We’ll explore this further in the article below.

Exploring the Semiconductor Shortage

The term ‘semiconductor’ describes substances with properties integrated somewhere between them, with ICs (integrated circuits), transistors and diodes all made from semiconductors.

Such entities all have an electrical conductivity value, which means that they have a genuine purpose in a range of electrical and mechanical devices. For example, you’ll find semiconductors in smartphones, digital cameras, televisions and LED bulbs, while automobiles also utilise them for their displays and safety systems.

As you can imagine, there’s a significant demand for semiconductors in normal market conditions, but it’s fair to say that this has scaled markedly throughout the coronavirus pandemic.

For example, consumers and businesses invested in laptops to facilitate working from home, while children were also provided with similar devices as schools across the board were temporarily closed.

At the same time, this market has suffered from significant disruption to the supply, from the diminished number of workers across global production sites and wider breaks in the international supply chain.

These factors have combined to both create and exacerbate a shortage of semiconductors, with brands such as Renault having recently paused production at one site in France and two in Morocco for several days as supply issues continued.

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What Does All This Mean for the Markets?

Certainly, the shortage has had a marked impact on prices in some markets, particularly the second-hand vehicle sector and smartphone sales.

The global equity markets have also been affected, although not in the way that you may initially think. More specifically, chipmaking and semiconductor stocks (or those that produce machinery and tools for this space) have returned around 26% through 2021 to date, outperforming the Nasdaq 100’s corresponding return of just 15% according to Tickmill.

There are several reasons for this, not least the fact that the rising product prices which have emerged as a result of the shortage have benefitted some brands, including market leaders and the best-resourced firms.

Similarly, the heterogeneous and secretive nature of the semiconductor market often sees the hoarding and stockpiling of chips by some customers, with such brands able to control and dominate supply in the current marketplace.

This trend is likely to continue indefinitely too, with many experts suggesting that the shortage will persist until mid-2022 at the earliest.

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