Shares in Taiwan, South Korea and the tech hardware sector “have over-delivered” this year and look particularly vulnerable to shockwaves from the US banking stress, according to Goldman Sachs Group Inc.
(Bloomberg) — Shares in Taiwan, South Korea and the tech hardware sector “have over-delivered” this year and look particularly vulnerable to shockwaves from the US banking stress, according to Goldman Sachs Group Inc.
Taiwan and the information technology sector are more sensitive to US financial conditions and economic growth than most other parts of the Asia-Pacific region excluding Japan, strategists including Timothy Moe wrote in a note Friday. These areas, as well as Korea, have yet to price in recent macro developments, they said.
Benchmarks for Korea and Taiwan have fallen more than the broader MSCI Asia Pacific ex Japan Index this week as banking sector woes jolted markets globally. The sudden demise of three US financial institutions and the turmoil at Credit Suisse Group AG have cast a pall on the outlook for emerging markets.
The slide in the two North Asian markets stands in stark contrast to their rally earlier in 2023 when bets on the bottoming out of the semiconductor cycle saw them outperform major regional peers. Foreign investors have net bought a combined more than $10 billion of shares in the two markets since the start of the year.
Goldman’s note of caution comes after it upgraded Taiwan shares to marketweight in January. The Taiex Index has climbed 3.5% since, outperforming the broader MSCI Asia Pacific Index. The firm raised Korean equities to overweight in November. The Kospi has fallen 2% since the change, trailing the regional benchmark.
The strategists wrote in Friday’s note that India and Thailand, as well as the utilities and consumer retail sectors, are pockets of the region that have “underperformed their macro backdrop” and might be more insulated.
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In the current environment, Goldman prefers internet stocks that have “significantly de-rated” versus regional lenders on expectations of a peak in bank margins as central banks near the end of their tightening cycles. In addition, “strong balance sheets stocks in the region should outperform those with weak balance sheets,” the strategists wrote.
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