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From brutal year to stellar start, tech stocks now Asia darlings
[TOKYO] Technology shares are staging a comeback.
After a brutal 21 per cent sell-off in the MSCI AC Asia Pacific Information Technology Index last year - the worst performance in a decade - semiconductor-related companies are clawing back gains. That may come as a surprise after the latest round of disappointing results but investors are looking ahead at a second-half recovery.
"It's that momentum - a lot of investors are thinking we're nearing a bottom," said Marcus Shin, an analyst with Mizuho Securities in Tokyo. "Those who think a sector rebound is due in the second half are already making a move. There's no burden valuation-wise."
Although fundamentals haven't changed, chipmakers such as SK Hynix said it will be nimble with investment spending. Hynix, which posted its first operating profit decline in more than two years, sweetened its underwhelming results with a 50 per cent increase in dividend payouts. Intel, whose sales lagged the lowest analyst estimate, also lifted its quarterly dividend and plans to spend more on capital spending this year.
Samsung Electronics, the world's largest memory-chip maker, is expected to report downbeat fourth-quarter results on Jan 31, after some analysts described its preliminary estimates as a "shocking" miss.
The MSCI gauge for technology stocks in Asia is up 7.8 per cent so far this year, clawing back US$77.6 billion in market value. Top contributors to the rebound in January are Samsung, Hynix, Japan's Hitachi and Tokyo Electron. China's Internet giants have also been in recovery: Tencent Holding is up more than 8 per cent this year, while Alibaba Group Holdings' American depository receipts have risen 14 per cent.
"The rally in the segment is lifting Hong Kong tech stocks too," said Kevin Chen, an analyst with China Merchants Securities HK. "While there's no clear signal of a recovery in the smartphone supply chain, AAC and Sunny stocks have dropped a lot earlier and investors who believe it's not going to get worse may have started short covering."
Elsewhere, investors have also shrugged off dim earnings reports and forecasts. ASML Holding's first-quarter sales forecast missed estimates due to a fire at a supplier, while Texas Instruments and Lam Research announced sales forecasts that trailed estimates. Shares of all three companies climbed.
To be sure, there are doubts over whether the current rally is sustainable. Mizuho's Shin forecasts a 30 per cent to 40 per cent drop in prices of dynamic random-access memory chips used in servers this quarter, compared to the previous quarter. He notes Hynix's guidance on first quarter results was "pretty bad" and a "shock."
"We have yet to see all the bad news so it's hard to think that this rally will just keep on going," Mr Shin said. "But I do expect a dramatic recovery both in terms of earnings and share prices in the second half."