Asia Tech Firms Rally, and Not Just Because of Netflix

(Bloomberg) -- The worst performing sector in Asia is having a great day.

Technology shares drove advances in the region Wednesday as Apple Inc. supplier Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. soared, contributing to the MSCI Asia Pacific Index’s 1 percent gain. Before today, the MSCI Asia Pacific Infotech Index had slipped 16 percent this year.

Netflix Inc. may have boosted investor sentiment as it surged in post-market trading after crushing analyst expectations with its latest results (the first among FAANGs to report). There was also SoftBank Group Corp., which rose as much as 5.8 percent, after a Wall Street Journal report estimated Uber Technologies Inc.’s valuation at $120 billion. SoftBank, Uber’s largest shareholder, was the second-biggest boost to the Nikkei 225 Stock Average’s 1.6 percent rally today.

But a bigger factor for Asian tech stocks might’ve been California-based memory chipmaker Lam Research Corp.’s better-than-expected forecasts for second-quarter profit and sales. The Philadelphia Semiconductor Index, known as the SOX, rallied 3.3 percent for its best performance since March, bolstering sentiment for companies in the chip supply chain in Asia.

“The pace of the recent downward correction in technology stocks had been too rapid,” said Masahiko Ishino, an analyst at Tokai Tokyo Securities in Tokyo. For chips, “uncertainty surrounding the outlook had been a drag on the SOX and its rebound spurred a sense of relief.”

Asia Tech Firms Rally, and Not Just Because of Netflix

The chip sector has taken a beating this year on concerns over prices and slowing demand. Morgan Stanley warned in August that investors should sell chip stocks, citing elevated inventory and a risk of demand slowdown. Earlier this month, the firm took another swipe at semiconductors with an analyst cutting his earnings estimates for the first time in three years. Fast forward to this week, and the brokerage acknowledged that the recent sell-off in the sector has been “swift and painful,” but the outlook remains a tough one going forward.

In Asia, Morgan Stanley analyst Shawn Kim, who cut Samsung’s rating to equal-weight last year, said this month that the outlook is even worse as data centers are “no longer eager to buy” memory chips. Samsung is planning to curtail growth in memory chip output next year to keep supplies tight, Bloomberg reported last month.

And Tokai Tokyo’s Ishino remains wary. “We’re still not in a situation where we can be purely optimistic,” Ishino said. “I think it’d be good to stay cautious.”

Still, today is a good day. In Japan, Sumco Corp. rose as much as 5.6 percent, Advantest Corp. jumped 4.4 percent and Disco Corp. climbed 6 percent among others. In Taiwan, Nanya Technology advanced 4.6 percent, United Microelectronics added 2.3 percent and Formosa Sumco Technology gained 2.1 percent. Taiwan’s Taiex index rallied 1.2 percent.

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