Asia Leads Global Value Rotation On Chip Woes

By Abishek Vishnoi, Bloomberg Markets Live reporter and strategist

A rotation from growth to value stocks is more pronounced in Asia than anywhere else globally, as doubts grow over the chip rally’s staying power.

MSCI’s gauge for value stocks in Asia Pacific has risen about 6% this quarter, compared with a 2% drop in its growth counterpart, on track for its biggest outperformance since January-March 2022, according to data compiled by Bloomberg. The gap is wider than the swings in the US and Europe over the period.

The divergence shows how Asia’s growth trade had come to rely on a handful of chip stocks, with their reversal now prompting investors to look for cheaper options. Asian value stocks remain inexpensive relative to both growth shares and global peers. A nearly 20% weighting of financials in the regional gauge offers another potential tailwind from higher yields.

“The value rotation in Asia is set to expand and extend as semiconductor’s downtrend is not yet finished,” said Hao Hong, chief investment officer at hedge fund Lotus Asset Management in Hong Kong. “The market has clearly entered a new phase as funds will favor those names with solid growth and track records.”

Value stocks in Asia are trading at 10.8 times their one-year forward earnings estimates, compared with 17.9 times for the US and 12.3 times for Europe, according to data compiled by Bloomberg. The multiple for Asian growth stocks is 13.

A rise in bond yields across major markets can potentially support bank earnings by widening lending spreads. That gives the region’s value trade an additional earnings lever at a time when higher yields and Federal Reserve rate-hike bets are putting pressure on long-duration growth stocks.

MSCI’s financials gauge has climbed 12% in Asia this quarter, while information technology, which comprises about a third of the regional index, is down 5.6%. It was dragged by a recent selloff in some of the global best performers of the past year, including SK Hynix Inc. and Samsung Electronics Co. Among value stocks, Genscript Biotech Corp. has surged more than 150% this quarter in Hong Kong.

More recently, value has been Asia’s best-performing investment style even on a long-short basis. The strategy buying cheap stocks and shorting expensive ones returned about 1% over one week ending Sept. 5, while growth was the worst performer with a negative return of -1.3%.

“The encouraging story is the valuation gap and regional stickiness as Asian value stocks remain cheap relative to global peers, giving investors both a defensive buffer today and a coiled spring for when risk appetite rebuilds,” said Hebe Chen, a senior market analyst at Vantage Global Prime in Sydney. “And in Asia, when the tide turns, it rarely walks — it runs.”