There is broad consensus in major investment firms’ outlooks for next year that Asian companies would see a significant improvement in earnings growth next year.
For Societe Generale SA, the most likely source of that growth would be from technology and financial shares.
“The earnings cycle is now showing signs of picking up,” Societe Generale strategists Roland Kaloyan and Frank Benzimra wrote in a report on Friday last week. “A lower base, improving earnings momentum, turnaround in the tech cycle and easing monetary conditions should help the market achieve 10 percent EPS [earnings per share] growth in 2020.”
Third-quarter earnings for Asian shares outside Japan showed visible signs of rotation, with once high-flying consumer companies disappointing, while the reverse was true for technology firms, the strategists said.
Semiconductor sales are increasing sequentially, just as memorychip prices stabilize and inventories fall, they wrote.
Taiwanese technology shares are best positioned to take advantage of the trend as they are more “quality” oriented, with lower earnings volatility and less impact from memorychip price fluctuations, while South Korean firms are more cyclically oriented, the report said.
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) has narrowly outperformed Samsung Electronics Co this year, with a 40 percent gain as both chipmakers raced well ahead of the MSCI Asia ex-Japan Index.
TSMC shares yesterday rose 0.96 percent to close at NT$316 in Taipei trading, while Samsung shares rose 1.59 percent to close at 51,200 won in Seoul.
The outlook for financial services companies is also brightening, as asset quality has shown signs of stabilizing, central banks have little room for more monetary easing and growth is normalizing, the report said.
“The case for a recovery in China banks looks convincing, with NPL [non-performing loan] ratios stabilizing and limited room left for margin contraction,” it said.
ADVANCED: Previously, Taiwanese chip companies were restricted from building overseas fabs with technology less than two generations behind domestic factories Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), a major chip supplier to Nvidia Corp, would no longer be restricted from investing in next-generation 2-nanometer chip production in the US, the Ministry of Economic Affairs said yesterday. However, the ministry added that the world’s biggest contract chipmaker would not be making any reckless decisions, given the weight of its up to US$30 billion investment. To safeguard Taiwan’s chip technology advantages, the government has barred local chipmakers from making chips using more advanced technologies at their overseas factories, in China particularly. Chipmakers were previously only allowed to produce chips using less advanced technologies, specifically
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