When the chips go up: Big banks bet on S. Korea, Taiwan stocks for 2023

Dec 1 (Reuters) – World banks are turning bullish on South Korean and Taiwanese shares, anticipating a revival in semiconductors to drive a rally subsequent yr, whereas they see Japan’s market as resilient thanks partly to its weak forex.

The calls come as U.S. charges are nonetheless rising, with most markets world wide eyeing their worst annual returns because the 2008 international monetary disaster and with chipmakers’ earnings cratering.

Goldman Sachs says South Korean shares are the financial institution’s prime “rebound candidate” for 2023 because of low valuations, made cheaper by a nosediving Korean gained, and as corporations profit from an anticipated restoration in Chinese language demand. It expects a 2023 return in greenback phrases of 30%.

Morgan Stanley additionally offers Korea prime billing. Along with Taiwan, it’s the finest place to be, says the financial institution, as the 2 markets have a fame as “early-cycle” leaders within the demand restoration.

Financial institution of America, UBS, Societe Generale and Deutsche Financial institution’s wealth supervisor DWS are all bullish on Korean shares, with analysts’ conviction in that commerce mendacity in sharp distinction to its divided view on India and China.

“Within the semiconductor space, demand ought to backside within the first quarter of subsequent yr and the market all the time begins to run earlier than that,” stated DWS’ Asia-Pacific chief funding officer, Sean Taylor, who added Korean publicity in latest months.

“We expect (Korean shares) bought off an excessive amount of in September and August.”

South Korea’s benchmark KOSPI index (.KS11) has misplaced about 17% thus far this yr and the gained has declined 9%, although each have proven indicators of restoration in latest months.

Goldman Sachs additionally famous that 5 years of promoting has pushed international possession of Korean shares to its lowest stage since 2009, however inflows of about $6 billion since end-June “signifies a flip in international curiosity” that might carry the market additional.

Societe Generale’s suggestion for buyers to extend their publicity to Korea and Taiwan comes on the expense of China, India and Indonesia. Goldman’s desire for Korean shares comes because it has recommended a discount in Brazil publicity. Morgan Stanley downgraded its view on Indian publicity in October, when it upgraded its suggestion for South Korea.

Morgan Stanley is most bullish on chipmakers turning out commoditised low-cost chips in addition to chips destined for shopper items – together with corporations resembling Samsung Electronics (005930.KS) or SK Hynix (000660.KS). Morgan Stanley has a worth goal for SK Hynix about 50% above the present share worth.

RISK-REWARD

Taiwan and Japan provide points of interest for some comparable and a few novel causes. Like South Korea, Taiwan (.TWII) is one other heavily-sold and chip-maker dominated market – although tensions with China make some buyers a bit much less enthusiastic.

Goldman Sachs is underweight Taiwanese shares, citing geopolitical danger, whereas Financial institution of America is impartial and its most up-to-date survey of Asian fund managers exhibits they’re bearish.

Japan (.N225) additionally provides chips publicity in addition to some safety and diversification, with the weak yen additionally a tailwind for exporters and sometimes a boon for equities.

“A sustained keep at such undervalued ranges, as anticipated by our FX strategists, augurs properly for Japan equities,” stated Financial institution of America analysts, who advocate obese allocation to Japan. Morgan Stanley, DWS, UBS are additionally optimistic, as is Goldman Sachs, particularly for the second half when it forecasts inflows.

There may be much less settlement with regards to China, the place large buyers appear to be in a wait-and-see mode, or India the place funding homes really feel an 8% rally for the benchmark Sensex (.BSESN) has left valuations a bit expensive.

To make certain, a lot of the banks’ funding calls relaxation on assumptions that U.S. rates of interest ultimately cease going up and China ultimately relaxes its COVID guidelines.

In the meantime, Taiwan and South Korea are each geopolitical flashpoints – however analysts argue no less than a few of that’s already within the worth.

“There was some political concern in each Korea and Taiwan for a very long time,” stated Societe Generale’s head of Asia fairness technique, Frank Benzimra.

“Issues can all the time worsen,” he stated. “However when it comes to the risk-reward, what we discover is that a lot of the lowly valued markets, whether or not it is Korea or Taiwan … have extra restricted draw back due to the buildup of dangerous information that we now have seen during the last 12 months.”

Reporting by Harish Sridharan in Bengaluru; Enhancing by Ana Nicolaci da Costa

Our Requirements: The Thomson Reuters Belief Rules.