Goldman names the Chinese tech stocks it says will weather the supply chain crisis

Published Thu, May 12 20229:04 PM EDT

Investors worried about the supply chain shocks from China's Covid lockdowns can look to these tech stocks, according to Goldman Sachs. Goldman analysts said in a note on May 3 that the share price slump in the sector has likely "priced in the lockdown impact." On top of the supply chain disruptions from Beijing's strict zero-Covid policy, months of regulatory scrutiny from the Chinese government have continued to weigh on investor sentiment over the country's tech stocks. As of its Wednesday close, the Hang Seng Tech index in Hong Kong has fallen more than 29%. On the mainland, the Star 50 index — a collection of the 50 largest stocks on the tech-heavy Star Market — has tumbled more than 28% in the same period. The broader tech sector globally has also come under pressure against the backdrop of expected monetary policy tightening by central banks as they seek to combat inflation, with the tech-heavy Nasdaq Composite sliding more than 4% on Monday stateside . Higher interest rates tend to work against stocks in growth sectors such as tech, as they make their future earnings seem less valuable. Still, Goldman analysts have identified a number of Chinese tech stocks that they see having better earnings visibility for the first half of 2023. In the semiconductor space, Goldman likes Chinese chipmaker SMIC , with a target price of 27 Hong Kong dollars per share. That represents more than 70% upside from where the stock closed Wednesday in Hong Kong. Another Hong Kong-listed Chinese semiconductor stock the investment bank likes is Hua Hong Semiconductor . "Despite the near-term headwinds, we remain constructive on China Semis given its long-term growth from technology migration, product line expansion, and growing local demand," the Goldman analysts said. Among software stocks, Goldman has identified Chinasoft , while component maker AAC Technologies is also among the picks for companies with exposure to the smartphone sector. "We expect ongoing COVID restrictions in China and global macro uncertainties, soft market demand and risk of supply chain disruption, and companies that are exposed to smartphones or other consumer electronics facing more severe headwinds," the Goldman analysts said. "Against this backdrop, we continue to prefer names with growing / diversified end-markets or strong idiosyncratic drivers such as product mix upgrade, share gain, and new products/penetration," they said.

An Ubtech Walker X Robot plays Chinese chess during the 2021 World Artificial Intelligence Conference at the Shanghai World Expo Center on July 8, 2021 in Shanghai, China.

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Investors worried about the supply chain shocks from China's Covid lockdowns can look to these tech stocks, according to Goldman Sachs.