新興市場見解：半導體業急升 (只提供英文版)

Three things we’re thinking about today

1. Semiconductors in focus: The semiconductor sector, as represented by the Philadelphia semiconductor index, posted a 10% gain in February.¹ This reflected renewed optimism surrounding artificial intelligence (AI) chips and their associated applications. Asian chipmakers, which are responsible for manufacturing most of these chips, posted similarly strong gains in the month. This blistering pace of gains may not be repeated in March, but sentiment toward the sector for now remains positive. We are constructive on a broad-based recovery in semiconductor demand in 2024.
2. Electric vehicle (EV) slowdown: The EV sector has been under pressure in recent months despite rapid growth in 2023. Chinese EV demand rose 36% to 7.7 million units, and demand in the United States rose 58% to 1.5 million units last year.² Looking ahead, price sensitivity in the United States and irrational range anxiety (the average trip by a US car owner is <50 kilometers) is slowing capital investment plans and lowering sales forecasts for 2024. Predictably, this has a negative impact on share prices. Nevertheless, our long-term outlook for the sector remains optimistic. We expect input costs—especially for batteries—to decline, leading to improved cost competitiveness against internal combustion engine vehicles.
3. Egyptian capital infusion: Egypt has been struggling economically in recent months due to an influx of refugees from Gaza, and Houthi attacks in the Red Sea which have disrupted shipping traffic in the Suez Canal. Egypt is expected to agree to an extension and possible increase to its US$3 billion loan program with the International Monetary Fund in the coming weeks.³ This follows a recent agreement with the United Arab Emirates (UAE) to invest US$35 billion to develop Egypt’s Mediterranean coast area Ras El-Hekma. The investment hopes to double foreign tourist arrivals to 30 million by 2030.⁴ While there may be a devaluation in the official exchange rate once the IMF loan is agreed upon, the UAE investment should boost confidence in the long-term prospects for the economy.      

Outlook

Emerging market (EM) equities have experienced bouts of volatility in recent months.  Equity prices can overreact to short term developments. This is why investors need to maintain focus on fundamental factors. For example, while reinvestment of profits may impact short term cash flows, in the long term this reinvestment may be a driver of cash flow growth. 

As active investors we are always ready to capitalize on momentary fluctuations in stock prices. We view such price movements as opportunities. We may adjust our exposure accordingly as these situations arise. Our decisions are guided by the investment themes that our portfolios are positioned around.

We are not averse to trimming our exposure to stocks that have risen above our estimate of fair value, even if it means giving up short term gains for longer term capital preservation. Other factors that drive our decisions include assessing a company’s competitive strengths and capital distribution policy.

We attribute our expertise in assessing such situations to our long-standing local and global presence. Our local presence helps us identify emerging business models that display agility and resilience. Our global presence allows us to consider whether short-term uncertainty is reflective of cyclical or structural trends.

Market review: February 2024

EM equities rose during the month and fared better than their developed market counterparts. Equity markets remained buoyant. Nevertheless, investors have in recent months dialed back expectations for the pace and scale of US Federal Reserve rate cuts. For the month, the MSCI Emerging Markets Index returned 4.78%, while the MSCI World Index advanced by 4.28%. 

The emerging Asia region advanced. All countries within the benchmark ended higher. China led gains. Efforts to stabilise its equity market eclipsed ongoing macroeconomic concerns. These efforts included China’s sovereign wealth fund’s plans to expand its purchases of exchange traded funds and the country’s housing authority’s approval of development loans. The latter, which aimed to inject liquidity into the property sector, triggered a rebound in real estate stocks. 

A rally in semiconductor chip stocks benefited the stock markets of Taiwan and South Korea. This rally was driven by a major US chip designer’s optimistic growth projection. Suppliers to the chip designer are among the beneficiaries of this forecast. The rising popularity of AI—which is a driver of demand—underpinned the performance of these stocks. Strong January sales data also buoyed the share price of a semiconductor foundry listed in Taiwan, boosting the country’s performance. South Korea unveiled plans to encourage and support companies' voluntary efforts to return more capital to shareholders and improve governance. India’s market rose on the back of improving macroeconomic data, but profit-booking curbed returns.

The emerging Europe, Middle East and Africa region also registered gains. While geopolitical tensions heightened in the region, higher oil prices provided a tailwind to Middle Eastern equity markets. Egypt also signed a deal with the UAE for an urban development project in one of Egypt’s coastal regions. The developed area will hold residential neighborhoods, tourist spots and a business district, among others. We are of the view that this deal provides a good starting point to ease some pressure on the Egyptian currency system.⁵ In South Africa, its national budget included plans to hike taxes and increase social grants to spur economic growth.

Equities in Latin America fell marginally. Brazil and Mexico expressed confidence in their macroeconomic outlook. Brazil’s president forecasted an economic growth exceeding 2% in 2024, with inflation reaching the mid-point of the central bank’s target range. Mexico’s central bank also believed that its headline inflation will return to a downward trend. It also raised the probability of a rate cut in the coming months.