$14 Billion JPMorgan Fund Bets Asia Chip Stocks Will Catch Up to US Rally

Shubhangi Goel, Bloomberg News

(Bloomberg) -- A $1.4 billion fund run by JPMorgan Asset Management is betting on Asia’s chip supply-chain stocks playing catch up with their surging US counterparts.

Oliver Cox, co-manager of the JPM Asia Pacific Equity Fund, expects investors to start pricing in more artificial intelligence-related orders for Asian companies, leading to higher valuations in the second half of 2023. There’s room for AI to become a bigger driver of regional earnings and the order rush will likely unfold through 2024, he said.

“That’s how the dynamics would play out based on what we’ve seen in previous cycles,” Cox, whose fund is beating 86% of its peers this year, said in an interview. There’ll be “the wake up call to the market that actually this whole catch-up trade” is showing up in earnings, he added.

Nvidia Corp.’s bullish sales forecast in May sparked a frenzy for all things AI, and that momentum has stayed strong globally. Once-skeptical brokerages are touting the prospects of AI-linked semiconductor stocks, with Morgan Stanley upgrading chip companies in Greater China, Japan and South Korea this month.

However, the clamor has benefited US names more so far, as many Asian firms have seen earnings eroded by an electronics demand slump and are only now seeing a “pick-up” in AI-related business, Cox said. Taiwan Semiconductor Manufacturing Co.’s shares dropped as much as 3.8% Friday after it cut its annual revenue outlook.

The Bloomberg Asia Pacific Semiconductors Index’s 23% advance this year is roughly half that of its US peer. Its 12-month forward price-to-earnings multiple is trailing the Philadelphia Semiconductor Index’s by almost five points, the widest gap since 2017.

Aside from having relatively attractive valuations, Korean suppliers may benefit from price surges thanks to “potential DRAM shortages going into 2024” as AI technologies drive demand for high bandwidth memory, the Hong Kong-based manager said. Cox is also exploring investments in advanced chip packaging and testing firms in Japan and Taiwan for a separate technology-focused fund that he manages.

Forward earnings estimates for the Asia semiconductor gauge have risen 15% from their 2023 low, nearly double that of the US gauge.

In June, the JPMorgan fund increased exposure to Korean chipmaker Samsung Electronics Co. and Unimicron Technology Corp., a Taiwanese printed circuit board manufacturer, according to data compiled by Bloomberg. The fund is up 7.1% this year.