It is often the case that when a view becomes a virtually universal consensus it soon proves to be w...
It is often the case that when a view becomes a virtually universal consensus it soon proves to be wrong. So it seems to be proving with technology hardware stocks in Asia.
Within the last four months the market has turned from overwhelming bullishness to being very nervous about the sector.
With technology stocks being a significant sector in the region and with electronics a very significant component in the growth of exports across the region what happens to the electronics cycle is an important issue.
In the weeks following the sharp Nasdaq correction in March and April of this year it became popular to proclaim the virtues of Asia's semiconductor and PC component stocks as sure-fire beneficiaries of the new economy.
Unfortunately for the bulls supply now seems to be coming on faster than expected. More importantly, the stocks were priced for perfection.
After a fairly nasty downturn in the last couple of months confidence in the sector has been shaken and it is tempting to become optimistic about a trading bounce. However analysts' earnings forecasts for the sector are only just beginning to turn down. In addition many investors are still overweight the stocks hoping to sell into what they hope will be a fourth quarter rally. This mans any such rally will be short-lived.
We therefore remain light the technology rich Taiwan market and the technology sector in general. Telecoms is another once-loved sector which has been hit both by global telecoms issues and the prospect of a lot of new issues coming into the market within the region.
The investment bankers have a list of new issues amounting to some 40 or 50 % of the regional telecom free float market cap, enough to weigh down heavily on the sector. We will have to see several of these big issues safely placed or alternatively pulled before it will be safe to go back into the water here we are light telecoms stocks.
On the positive side these negatives will probably be fully priced in by sometime in the fourth quarter, at which point the region should be offering the prospects of reasonable returns over the following nine months, particularly in relative terms. The regions banking sector is already a source of relative bullishness. The basket case banking systems in the likes of Indonesia and Thailand unfortunately remain basket cases, but elsewhere the credit cycle looks like it may be bottoming. There should be upside once the banks find a sector they would like to lend to.
We are heavy in banks and property stocks in Hong Kong and Singapore. While the Asia Pacific region as a whole is no longer expensive after recent corrections, it is not yet cheap enough to offer upside from here on a 12 month view. The markets need to absorb telecom paper and more tech stock selling before they become a buy
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