An escalating face-off between the world’s two largest economies has caught Asian technology shares in the middle, hammering those with the most at stake.
The MSCI AC Asia Pacific Infotech Index yesterday hit its lowest level since July last year as investors digested a Bloomberg News report that Beijing had hacked US computer networks using a microchip built by its spies.
The story came the same day as US Vice President Mike Pence criticized China across the economic, commercial and diplomatic fronts in a keynote speech.
While the two nations were already embroiled in a months-long trade confrontation, the latest developments raise the broader question of the place of China — and its Asian suppliers — in the supply chains that feed through to US consumers.
“It all means that trade friction will only get worse from here,” Singapore-based Asymmetric Advisors Pte senior strategist Amir Anvarzadeh said.
Shares of Chinese computer maker Lenovo Group Ltd (聯想) yesterday slumped as much as 23 percent for their biggest loss in almost a decade before paring some of the decline by the close.
In a statement, Lenovo said Super Micro Computer Inc, the company at the center of the hacking investigation, is “not a supplier to Lenovo in any capacity” and the company would take steps to protect the ongoing integrity of its supply chain.
Super Micro supplied servers to clients that were altered to add the hacking chip, the Bloomberg report said.
Benchmark stock indices fell across Asia.
Taiwan’s TAIEX fell 1.88 percent to 10,517.12 points in Taipei for its lowest close since May.
The broader MSCI Asia Pacific Index is heading for its worst week since March.
Shares of ZTE Corp (中興通訊), a Chinese communications equipment maker that has been hit by US sanctions, fell 11 percent in Hong Kong, the most since June.
Walsin Technology Corp (華新), the top emerging-market stock through the first half of the year before becoming the worst since mid-July, dropped 9.85 percent in Taipei trading.
Shares of camera lens maker Largan Precision Co (大立光), an Apple Inc supplier, fell 7.28 percent.
Realtek Semiconductor Corp (瑞昱) shares were down 8.3 percent to a July low.
Win Semiconductors Corp (穩懋) shares fell 9.85 percent to the lowest level since February last year.
“Electronics produced in China may be viewed unsafe due to this news and tech shares are falling in general because of that,” CGS-CIMB Securities Hong Kong Ltd analyst Ray Kwok (郭錦威) said of the Bloomberg story.
Lenovo could be particularly vulnerable because it generated more than 30 percent of its revenue in North America and 75 percent outside China in its most recent fiscal year.
“The hack report has nothing to do with Lenovo, but since Lenovo sells PCs and severs there, some investors may have concerns on a sentiment level,” eFusion Capital Ltd (易方資本) senior analyst Dennis Guan said. “It’s just too hard to predict how things will develop.”
In a note to clients, JPMorgan Chase & Co recommended shorting Lenovo with a six-month time frame given the company’s PC and server sales to the US.
“Whilst Lenovo isn’t directly implicated in the expose, it is hard not to see [the] US slow down their procurement of servers near term,” the note obtained by Bloomberg said.
Investors may also consider shorting Taiwanese computer companies including Quanta Computer Inc (廣達), Inventec Corp (英業達), Wiwynn Corp (緯穎) and Wistron Corp (緯創), JPMorgan said.
Wistron gets about 20 percent of its enterprise server business from Super Micro, JPMorgan said. A Wistron press official confirmed that Super Micro is a customer but declined to provide further details.
Wistron fell 4.4 percent to a two-year low while Wiwynn retreated 6.9 percent for a fourth day of losses in Taiwan.
Polytronics Technology Corp (聚鼎科技) yesterday announced that it is buying Henkel AG’s thermal clad dielectric material (TCLAD) business division for US$26 million as the Taiwanese firm aims to improve its technology, product portfolio and revenue performance. Polytronics, headquartered in the Hsinchu Science Park (新竹科學園區), is a supplier of protection components and heat dissipation materials. The firm entered the metallic heat-dissipation substrate market in 2007 and developed a unique solventless production process. Its board of directors approved signing an agreement with Henkel to acquire the German chemical firm’s TCLAD division in the US. The purchase includes all assets and business interests, including equipment,
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