What Stocks Should Emerge First, Post-Crisis?

Think Asian tech firms. That’s the reasoning of Wellington Management.

Once the coronavirus and its economic blight are over, which stocks should make a decent comeback first? Maybe Asia tech.

In China, where the coronavirus plague appears to be receding, people are going back to work again. And although revving up the Chinese economic machine may take a while—the rest of the world, i.e., much of its customer base, is in shutdown mode—a lot of investment opportunity abides there. Not to mention in the tech realm throughout Asia.

That’s the argument of Wellington Management, which in a research note contends that the Asian technology sector is poised for an upturn, perhaps in the year’s second half. “Asian tech stocks may have led the way into the storm, but if history is any guide, they (especially the hardware stocks) may also lead the way out of it,” wrote Wellington portfolio manager Anita Killian.

The MSCI AC Asia Pacific Information Technology Index was going strong and only dipped recently. Chinese holdings are just a small portion of the index, and the rest of Asia wasn’t slammed as hard to the world’s No. 2 economy. Last year, the index had a stellar 43% performance.

The group’s hallmark is resilience, Killian maintains. “Indeed, few sectors have weathered so many shocks since the late 1990s,” she writes. “First up was the Asian financial crisis, followed by the bursting of the tech bubble, the SARS scare, the global financial crisis, the Thailand floods, the Japanese earthquake, the US-China trade war, and now COVID-19.” 

After listening in on conference calls with many Asian tech companies, she finds that “the situation on the ground is much better than might be expected.” For one thing, demand appears to be ready to resume, factories are almost all the way back in operation with low inventories, and prices for their wares are headed up.

She has a caveat, of course. “If the situation were to worsen significantly, especially in China,” Killian notes, “I would likely favor investments in China A-share tech stocks that have been benefiting from localization and semiconductor industry development.”

While the Wellington report doesn’t pinpoint any individual stocks, some of the Asian tech segment’s stars would seem to fit its upbeat prognosis.

Samsung, the South Korean conglomerate that makes everything from smartphones to TVs to computer chips, enjoyed steadily rising sales last year and its stock doubled over the past four years. Since January, the share price is off 7%, a mere pittance. A slowdown in chips hurt its results at the end of last year. One of the globe’s biggest computer information technology (IT) makers and a huge components supplier to rivals like Apple, it is a key in the international tech supply chain.

Some concern swirls around Taiwan Semiconductor Manufacturing, the world’s third largest chipmaker, over the Trump administration’s plan to crack down on China’s Huawei Technologies, the telecom colossus. President Donald Trump has threatened to cut off access to US technology, which helps Taiwan Semi make its chips for, among others, Huawei. But some analysts figure that the Taiwan company is too vital to US interest to punish.

Meanwhile, the Taiwan firm’s stock is off 21% since mid-January, when the virus began spilling out of China. But the company’s revenue was up smartly last year, and earnings got trimmed only a bit amid tensions over the US-China trade war, now on hold.

In China, Tencent Holdings, the social media and gaming giant, also has a firm hold on mobile payments and cloud technology, which are sure to benefit going forward. Over the past two years, the stock has dipped just a bit, down 10%. And Lenovo Group, the world’s largest PC maker, had a record fourth quarter. That is sure to drop once early 2020 results are in, so the stock has lost half its value this year in anticipation. One the plus side, it’s cheap, at a trailing price/earnings ratio of 9.

Absent any more unpleasant surprises up ahead, that’s at last nice to know in these troubled times.

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