Insights 
VT 
China has reiterated its opposition to any formal exchanges between the US and Taiwan. This stance follows the visit of US Senator Roger Wicker to Taipei, aimed at discussing security concerns. Wicker, a strong supporter of Taiwan, emphasises the ongoing partnership between the US and Taiwan.
While in Taipei, Wicker seeks to understand the perspectives and requirements of Taiwanese officials. Concurrently, Taiwan’s President Lai Ching-te expresses his intention to enhance security collaboration with the US.
Military Presence And Commemorations
Amidst these developments, China intensifies its military presence around Taiwan. Beijing plans a large military parade to commemorate the 80th anniversary of the end of WWII, with Russian President Vladimir Putin and North Korean leader Kim Jong Un expected to attend.
Given the rising tensions around Taiwan, we are anticipating an increase in market volatility. We should consider buying protection, such as put options on broad market indices like the S&P 500, to hedge against potential downturns. The VIX, a key measure of expected volatility, has already climbed from a low of 17 to 23 over the past month, and these developments could push it higher.
The semiconductor industry is particularly exposed because of Taiwan’s central role in the global supply chain. This makes buying put options on semiconductor ETFs a prudent move to guard against disruptions. The PHLX Semiconductor Index has already dipped 5% since the start of August 2025, reflecting growing investor nervousness.
Opportunities And Market Expectations
Conversely, this geopolitical friction creates opportunities in the defense and energy sectors. We can look at call options on major defense contractors or long positions in crude oil futures, as conflicts often drive up demand and prices for both. The iShares U.S. Aerospace & Defense ETF (ITA) has already outpaced the S&P 500 by 6% since July, showing this trend is already underway.
We saw a similar market reaction when US officials visited Taipei back in August 2022. During that period, there was a sharp, temporary spike in volatility and a rush into safe-haven assets like the US dollar. That historical event serves as a useful guide for how the market will likely behave over the next few weeks.
In the currency markets, we expect the US dollar to strengthen as capital seeks safety. A long dollar position against the offshore Chinese yuan (CNH) looks promising, as the CNH has already weakened past 7.40, a key psychological level. At the same time, gold is becoming more attractive as a hedge, with gold futures climbing 3% this month to over $2,400 an ounce.
