Investors are snapping up shares of Asia’s technology hardware exporters, bolstered by interest in artificial intelligence and signs that the chip industry is turning a corner.
Rising expectations for an economic slowdown in the US and deepening Sino-American tensions over tech supremacy have done little to dent their rally. A Goldman Sachs Group Inc. basket of Asian exporters to the US — dominated by hardware stocks including SK Hynix Inc. and Taiwan Semiconductor Manufacturing Co. Ltd. — has surged more than 12% this year, compared with a 3% rise in the MSCI Asia Pacific Index and a 7.2% advance in the S&P 500 Index.
Investors are “going after technology hardware manufacturers and more specifically, the ones linked to microprocessors, which makes sense considering the surge of AI,” said Tareck Horchani, head of prime brokerage dealing at Maybank Securities in Singapore.
Interest in AI has risen exponentially since the launch of ChatGPT late last year, prompting technology companies to rush out competing tools and the chips to power them. AI has also become a crucial factor in determining companies’ share-price performance.
In China, the frenzy ushered in a months-long rally in software developers, chipmakers and even health-care providers, before market players started to question whether the earnings potential justify their rich valuations.
Semiconductor-related stocks in Asia rallied on Thursday after Nvidia Corp. gave a bullish revenue outlook on booming demand for artificial intelligence processors. Japan’s Advantest Corp. surged to a record.
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Conviction is also growing that the electronics cycle has bottomed out, with global semiconductor sales rising in March for the first time in ten months.
Expectations of a turnaround in chip demand have helped benchmarks in Taiwan and South Korea, which are heavily-tilted to technology shares, to be among the best-performing gauges in Asia this year. The Taiex Index has been trading in bull market territory since January, while the Kospi Index is nearing that milestone.
“In past cycles, an early pop in Taiwanese and South Korean equity performance signaled an improving fundamental situation, which has tended to be self-sustaining and leads to yet more equity outperformance,” Vincent Tsui, Asia analyst at Gavekal Research wrote in a note. “The combination of clear price signals and a decent fundamental picture in the semiconductor sector suggests this is a market still worth buying.”
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To be sure, the rebound in the industry is still at a nascent stage and the sector’s stock market performance can be swayed by geopolitical factors. A rally in Japanese chip shares, for example, stumbled after the country moved to restrict chip-making technology exports, while Taiwan’s semiconductor manufacturing output continued to slump in April.
And it is worth noting that the rally in Asia still trails that of the US. The rise in Goldman’s measure of Asian exporters is also only about half the gains seen in the Nasdaq-100 Index and Philadelphia Semiconductor Index.
While a mild recession in the US will have an impact on Asia’s export-oriented economies, they still “have the tailwind of reopening, resumption of travel, which will support growth to a certain extent,” Zhikai Chen, head of Asian and global emerging market equities at BNP Paribas Asset Management, said in a Bloomberg Television interview.
(Adds mention of Thursday’s jump in chip stocks in the sixth paragraph.)