More Signs of Risks Ahead

For the first time since June 2020, the MSCI EM Asia Info Tech index, as shown below, has broken below its 200 Day Moving Average (red line).

Source: Bloomberg

Names in the index include TSMC, Samsung Electronics, Tokyo Electron, Mediatek and so on. The recent weakness was brought forth in the past week as mentioned before, by the memory semiconductor names (Samsung and Hynix).

ATEC gets that there are secular themes underpinning the proliferation of semiconductors (Internet of things, AI, blah blah). But, any seasoned Analyst in this industry will also agree that secular drivers do not preclude cycles from occurring.

It is also true that many institutional investors are already well-weighted in this IT sub-sector precisely because of this secular argument, and also because it is has been a safer place to park their funds, away from the dreaded Chinese Internet names.

This is also why ATEC is concerned. Should this weakness in semiconductors represent the start of a wider downward adjustment in demand, then regional markets will likely face yet another round of selling. Taken together with the message from currencies mentioned earlier, the probability of such a scenario is not insignificant.

Of course, timing turns can be a rather difficult exercise, which is why we are highlighting this break of the 200 DMA now. Should we see follow-through on the downside from here, be ready to position/adjust accordingly.

Using the Elliot Wave framework ATEC is adopting here, a possible downside target suggested (for now) is around the 38% Fibonacci retracement level, or some 13% downside from here.