China has firmly opposed any formal meetings between the US and Taiwan. This position comes after US Senator Roger Wicker’s visit to Taipei, where he aimed to discuss security issues. Wicker, a strong advocate for Taiwan, highlights the ongoing partnership between the US and Taiwan. During his time in Taipei, Wicker aims to learn about the views and needs of Taiwanese officials. Meanwhile, Taiwan’s President Lai Ching-te expresses his desire to strengthen security cooperation with the US.

Military Presence And Commemorations

As these developments unfold, China is ramping up its military presence around Taiwan. Beijing plans a significant military parade to mark the 80th anniversary of the end of WWII, with attendees including Russian President Vladimir Putin and North Korean leader Kim Jong Un. With rising tensions around Taiwan, we expect increased market volatility. It may be wise to purchase protections, such as put options on major market indices like the S&P 500, to shield against potential declines. The VIX, a key indicator of expected volatility, has already risen from 17 to 23 in the past month, and these tensions could push it even higher. The semiconductor industry is notably vulnerable due to Taiwan’s critical role in the global supply chain. Buying put options on semiconductor ETFs is a smart strategy to protect against disruptions. The PHLX Semiconductor Index has dropped 5% since early August 2025, reflecting growing investor anxiety.

Opportunities And Market Expectations

On the flip side, this geopolitical tension creates opportunities in the defense and energy sectors. We could consider buying call options on prominent defense contractors or taking long positions in crude oil futures, as conflicts often increase demand and prices for both. The iShares U.S. Aerospace & Defense ETF (ITA) has already outperformed the S&P 500 by 6% since July, indicating that this trend is underway. We witnessed a similar market reaction when US officials visited Taipei in August 2022. At that time, there was a sharp, temporary increase in volatility and a surge into safe-haven assets like the US dollar. This historical event can give us clues about how the market might behave in the coming weeks. In the currency markets, we expect the US dollar to strengthen as investors seek safety. A long position in the dollar against the offshore Chinese yuan (CNH) seems promising, especially since the CNH has already fallen below 7.40, a key psychological barrier. Additionally, gold is becoming an appealing hedge, with gold futures rising 3% this month to over $2,400 per ounce. Create your live VT Markets account and start trading now.

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