Chinese chipmakers seen safe from dangers looming over Asian tech stocks

Chinese chipmakers are expected to escape from a projected 20 percent downside for Asian technology stocks amid trade-related risks, according to Morgan Stanley.

The Asian tech sector has around 20 percent near-term downside should tariffs increase on computer chips and trade tensions reescalate, analysts including Shawn Kim wrote in a note. What’s more, they believe current consensus earnings estimates are too high.

“Lower broader tech exposure in the near term and hedge sector exposure,” the analysts wrote. Headwinds for the sector “add up to poor near-term risk-reward.”

Global investors’ enthusiasm over artificial intelligence has been a boon to Asian tech stocks, with a gauge tracking semiconductor shares in the region gaining more than 65 percent since the end of 2022. But that has also extended valuations, while earnings-per-share estimate revisions “have not seen meaningful improvements,” according to Morgan Stanley.

At the same time, US President Donald Trump has said he expects to levy more tariffs on foreign production of computer chips and semiconductors. A round of geopolitical spats in 2018 sank shares in the sector, the analysts noted.

They do, however, see a few bright spots in the equity market.

“We favor Internet and Chinese domestic semi stocks over exposure to global semis,” they said. Chinese foundries and equipment companies including the Shenzhen-listed Naura Technology Group, Semiconductor Manufacturing International (0981), and Hua Hong Semiconductor (1347) should benefit from trade tensions due to their higher domestic sales exposure, they said.

SMIC and Hua Hong rose more than 17 percent and 10 percent respectively since January 27.

STAFF REPORTER AND BLOOMBERG