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Tech stocks take a beating amid Washington's ban against Huawei

Singapore-listed semiconductor firms could take further hits from higher tariffs if US-China truce is delayed

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Singapore tech counters faced selloffs on Tuesday in the wake of Washington's ban of Huawei Technologies from purchasing parts and components from American firms without US government approval.

Singapore

SINGAPORE tech counters faced selloffs on Tuesday in the wake of Washington's ban of Huawei Technologies from purchasing parts and components from American firms without US government approval.

Even though Washington on Monday temporarily lifted trade restrictions imposed last week, investors remain concerned over further escalation.

"Investors, concerned that China may retaliate to the US ban on Huawei with similar moves, are likely to have sold shares," said Brandon Leu, UOB Kay Hian's vice-president of equities and financial products.

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KGI Securities' head of research, Joel Ng, added that local tech counters suffered the spillover effect from Monday's Wall Street sell-off, triggered by Google suspending ties with the Chinese tech giant.

He added that activity was mostly sentiment-driven given that Singapore tech firms do not do much business with Huawei. The sector also had to contend with year-on-year gross domestic product for the first quarter missing street expectations.

That said, observers think that AEM Holdings' share price movement could be the most volatile in the near term.

AEM is one of the firms selected by Huawei for testing and developing cabling links for the latter's 5G backhaul network.

US semiconductor giant Intel, one of Huawei's biggest suppliers, is also AEM's main client.

Mr Leu noted that Intel suspending supply to Huawei could have an indirect effect on AEMĀ as theĀ mainboard-listed precision manufacturer supplies to Intel.

AEM is banking on growing through its deal with Huawei, Mr Ng said.

On Tuesday, AEM Holdings shares closed 3.5 cents or 3.6 per cent down at S$0.93. Elsewhere, Hi-P International ended 3.1 per cent down at S$1.24 and Venture Corp closed S$0.23 or 1.5 per cent lower at S$15.37.

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Citi's equity research team expects that the near-term impact from the Huawei ban on smartphone components will be limited given it has inventory to last 3-4 months. Moreover, observers acknowledged that the ban could be a negotiating tactic by the US, similar to when Washington lifted a three-month long ban against ZTE Corp in July 2018 through settlement.

However, if a resolution is not reached between the US and China, Singapore-listed semiconductor firms could take further hit from higher tariffs, given that many have factories and manufacturing facilities in China, Mr Ng noted.

"Asia's electronics supply chain is highly intertwined - the finished electronics products tend to be assembled in China, but various parts and components are supplied by other Asian countries," DBS Group Research economist Ma Tieying, said.

With market volatility returning to the fore, there are opportunities to buy on dips if there is an indiscriminate sell-down on tech counters, Terence Wong, chief executive at fund management firm Azure Capital, said.

"But, it is still early days, and it is better to let the dust settle. There are still a lot of uncertainties."

READ MORE: US temporarily eases trade restrictions on China's Huawei