Dream of Tech Stocks Leading Asia Put to Test as Weighting Drops

(Bloomberg) -- The souring of U.S.-China relations amid rising trade tensions and hardware hacks are putting to test the dominance of technology companies on Asian stock markets.

After slumping 27 percent from a January peak, the shares now account for 19 percent of the MSCI Asia Pacific Index, losing their top spot to financial firms, whose weighting has climbed to 21 percent. The gap between the two leading groups has reached its widest since August 2017.

Despite the plunge this year, technology shares in Asia remain “highly vulnerable to increased regulations and highly exposed to China-U.S. trade tensions,” said Nader Naeimi, the head of dynamic markets at AMP Capital Investors Ltd. The industry’s weakness in America -- the most-crowded sector with the most downside risk, according to him -- is adding to the burden for its counterpart in the region, he said.

Credit Suisse Group AG is also among skeptics. The brokerage maintained an underweight rating on Asia ex-Japan internet stocks on Thursday, citing continued downgrades to earnings estimates.

“If consensus EPS revisions in internet lag the broader region as they appear to be doing even in early October, why pay a premium even if that premium is not as high as it once was,” Credit Suisse strategists Sakthi Siva and Kin Nang Chik wrote in a note.

To contact the reporter on this story: Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Cecile Vannucci, Margo Towie

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