A few things are shaping up across markets which ATEC is keeping watch on.
Following our last note on Hong Kong titled Dim Sum Time? published on 7th October, the HSCEI index has slowly made its way to now being under its 50 Day MA as shown in green. That this is an important level is easily observed by the fact that this line had consistently resisted the index since March 2021.
Should the index overcome it, then it will suggest the market has embarked on its next up-wave. The sentiment at present is as sour as green Thai mangos and understandably so.
Whilst Evergrande (and the property sector in general) is still fresh in investors’ minds, so far it has really been the bondholders who are bearing the brunt of it (and equities of course).
There has also been a notable lack of contagion through to other parts of the Chinese financial system. If this is all there is to it, then ATEC looks forward to a potential period of repair ahead. For it is unthinkable to us that Beijing does not already have a path forward planned which will showcase how their ‘Common Prosperity’ approach can prove much more superior than the previous extreme capitalism the private sector is used to.
The issue of the Chinese titans is more tricky to navigate since much of the regulations will have longer durable impacts, with regards to how they compete, which areas they can compete and how profitably they can compete.
Eventually, this should evolve to a relative market share game, which at this stage is hard to call. Hence, ATEC will also spend more time on other sectors in the market here.
On Semiconductors or TSMC specifically, the third-quarter results yesterday was really a non-event since it was anticipated anyway. ATEC listened to the call and noted there was much concern over an impending ‘inventory correction’ in the industry.
Unless there is truly a widespread demand vacuum, it is ATEC’s experience that these calls are really tough to lean/rely on, especially during this atypical period. This is because whilst you might have some excess in areas like smartphones, PCs and LCD/LED screens, you also still have shortages in autos/processors and others. To be able to even guesstimate what the next impact will be is probably tougher than surfing in Teahupoo. It did not slip us that TSMC’s CC Wei continually emphasised that they are still seeing pent-up interest/demand from areas like IoT, hyperscale compute, 5G and so on.
He also explained that (somewhat) elevated inventories are now seen to be a necessity for many clients, given what the world went through last year. Hence, TSMC’s fabs will still remain ‘sold out’ throughout 2022.
TSMC is effectively giving us a glimpse into the theme which many might have forgotten/neglected for some time now — the complete digitisation of the economy.
Well, it is perhaps not perceived to be as ‘disruptive’ as names like EV decarbonization plays, hence not highly sought after. Yet, TSMC’s positioning and steady delivery truly make them an enabler of the future.
From here, ATEC relies on our technical framework for information and action. It should be fairly clear to many that there is probably not too much heavy ownership in the stock, given how it had basically done nothing since February this year. It is also true that despite much negative news, there is also little downside momentum.
We like this consolidation. We also think it is far from its peak. We wait for the signal.