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Japan-South Korea spat takes a toll on Tokyo tech shares

Investors sell Japanese chemical companies and buy US chipmakers

U.S. chipmaker Micron Technology's stock price shot up on Monday on the American stock market.   © Reuters

TOKYO -- Stocks in Japanese suppliers of chemicals and materials needed to fabricate semiconductors have taken a beating ever since the government announced Monday that it will restrict exports of chipmaking materials to South Korea.

As of Tuesday, Stella Chemifa and Showa Denko, which handle etching materials, had both slipped around 1% since the announcement. JSR, a major supplier of photoresists, plunged 5% at one point on Monday but recovered the next day so that it actually rose 0.8% over two days. But that was short of the 2.2% two-day gain for the Nikkei Stock Average.

In South Korea, Samsung Electronics, the world's largest chipmaker, and LG Display, a major manufacturer of OLEDs, or organic light-emitting diodes, were down 2% over the two days. Investors have grown cautious about the uncertainties over the companies' production activities.

The fabrication of semiconductors involves the use of materials whose specifications are strictly prescribed. As such, "it will be extremely difficult [for South Korean manufacturers] to change suppliers," said Atsushi Ikeda at Citigroup Global Markets Japan. Even if they find alternative materials, certification by chipmakers will take some time.

Meanwhile, Samsung's American rivals Micron Technology and Western Digital rose sharply on the U.S. markets Monday before giving up some of their gains the following day. A fund manager at a Japanese investment company said that production delays at Samsung will lead to tighter memory supplies, which in turn will result in higher prices.

Investors are also pouring money into manufacturers of chipmaking equipment. Tokyo Electron and Advantest both surged more than 7% over the two days. Players outside Japan got a boost on stock markets as well over the two days, including Dutch concern ASML and U.S. companies KLA-Tencor.

Following U.S. President Donald Trump's decision over the weekend to allow sales of some American products to China's Huawei Technologies, investors hoping for an easing of U.S.-China trade friction in the technology field bought back shares they sold. The Philadelphia Semiconductor Index, which is comprised of key semiconductor-related shares, rose on Monday to its highest since early May.

However, optimism will likely diminish if Japan continues to restrict exports to South Korea. Goldman Sachs said in a Tuesday report that global clients -- including those in the U.S. and China -- that use South Korean devices would be impacted.

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