Morgan Stanley picks Asia chip stocks that will be in 'pole position' when tech speeds up again

Published Wed, Feb 9 20227:40 PM EST

Morgan Stanley says the days of internet stocks hitting all-time highs may be over — but there are some chip stocks in Asia that will likely be in pole position when the tech "winter storm" passes. "We are unlikely to go back to new highs any more for tech stocks," analysts at the U.S. investment bank wrote in a Monday note. "We believe 2022 will be bifurcated, with a narrower recovery favoring the quality plays – companies with fortress-like balance sheets are probably the best choice, even if we don't get the biggest bounce out of them," they said. "It is important to discern which stocks will accelerate in this environment and have sold off vs. those that will decelerate." The analysts advised investors to stay defensive in the ongoing tech "winter storm," a reference to the global battering that tech stocks have suffered in recent weeks as central banks signal higher interest rates ahead. Such tactical corrections can last three to nine months, they explained, adding that major central banks such as the U.S. Federal Reserve have yet to start hiking rates. South Korean industry heavyweight Samsung Electronics and Taiwan's TSMC were among the "most favored" stock picks in this scenario, according to Morgan Stanley. These leading firms will "likely have pole position in the next tech growth curve" once the storm passes, the analysts said. "Stock prices have sold off with no change in fundamentals, and if these companies' products and services are vital to society, and if they are market leaders or enjoy high market share with a moat, they should eventually emerge stronger," the analysts said. Morgan Stanley has an "overweight" rating on both Samsung Electronics and TSMC. That means the bank expects these stocks to have an above average total return relative to the industry on a risk-adjusted basis over the next 12-18 months. In its most favored list, the analysts named other semiconductor stocks with an "overweight" rating, which included Japan's Renesas Electronics as well as Alchip , ASMedia and Nuvoton of Taiwan. As of Wednesday's close, the tech-heavy Nasdaq Composite dropped more than 7% since the start of the year. In Asia, Hong Kong's Hang Seng Tech index — already beaten down for months as regulatory pressure from Beijing builds up — has dropped about 0.63% in the same period.

A technologist inspects a computer chip.

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Morgan Stanley says the days of internet stocks hitting all-time highs may be over — but there are some chip stocks in Asia that will likely be in pole position when the tech "winter storm" passes.