Allianz Global Investors is betting that a resurgence in demand for semiconductors in the second half of 2023 will drive a long-anticipated revival of the global chip sector.
(Bloomberg) — Allianz Global Investors is betting that a resurgence in demand for semiconductors in the second half of 2023 will drive a long-anticipated revival of the global chip sector.
Chip industry sales will hit bottom in the second quarter before recovering, said Benson Pan, who manages the firm’s NT$24.7 billion (
$808 million) Taiwan Technology Fund. Pan said he added investments in Taiwan Semiconductor Manufacturing Co. and other Taiwan chip companies in the fourth quarter of 2022.
“My positioning strategy is based on a clear direction that the semiconductor industry is heading toward a cyclical recovery,” Pan said in an interview. “The chip industry tends to be overly pessimistic on outlook when it is going through a down-cycle,” he said.
Global demand for chips remains weak as soaring inflation, rising interest rates and concerns of a potential global recession continue to damp consumer spending on computers and smartphones. Even so, chip stocks have beaten the broader market this year, with the Philadelphia Semiconductor Index gaining 22% versus a 7% advance for the S&P 500 Index.
Pan expects semiconductor stocks to rebound one or two quarters before a turnaround in chip sales, adding that now is a good time to add exposure.
His sanguine outlook puts him at odds with Warren Buffett, whose Berkshire Hathaway Inc. dumped 86% of its TSMC American depository notes in the last three months of 2022, a move that startled the market and triggered more selling in the company’s shares.
TSMC in January cut its spending plan for 2023 on expectations that demand will be “softer than previously prognosticated”, and signaled the company may face its first quarterly decline in revenue in four years. The stock is up 18% this year, compared with a 12% gain in Taiwan’s benchmark Taiex stock index.
Pan expects TSMC’s full-year results to remain flat or to contract slightly, though he remains bullish on the chipmaker’s outlook over a two-year span. The world’s biggest contract manufacturer of chips has maintained its solid market share despite challenges including a planned overseas expansion and a US crackdown on chip exports to China, he said.
“I am not too worried about the current weary chip demand as it’s obvious that long-term usage for semiconductors will grow substantially,” Pan said. Applications for advanced chips is expanding far beyond traditional consumer goods to servers, automobiles and artificial intelligence, he said, adding that “this demand will eventually feed back to TSMC and other Taiwan suppliers.”
TSMC Joins Taiwan’s Chip Sector in Call to Bring Gearmaking Home
Escalating tensions between the US and China and fears of a global economic slowdown drove foreign investors to pull cash from Taiwan stocks last year, the first net outflow since 2019. That trend has since reversed, with the Taiwan Stock Exchange recording NT$12 billion of inflows in the first quarter, the most in Asia excluding China.
“The worst is over” for cross-strait tensions as China reopens and focuses on boosting its economy, which should help Taiwan’s tech companies attract more overseas money, Pan said.
Pan said he plans to maintain the portfolio’s focus on the chip sector, but he’ll be more selective on individual stocks, citing the potential of chip producers that can offer cloud-security hardware solutions to customers. Pan’s top three positions are eMemory Technology Inc., TSMC and United Microelectronics Corp.
Allianz’s Taiwan Technology Fund is up 22% this year after an 11% loss over the past 12 months, according to data compiled by Bloomberg. Pan said the past year was “especially challenging” because of unprecedented macro surprises such as Russia’s war in Ukraine and aggressive interest-rate increases by the Federal Reserve.
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