STOCK MOMENTUM SHIFTS
Lesser-known Asian tech firms rewarded investors in 2021 while Chinese education companies were the biggest losers. By Kentaro Iwamoto in Singapore
Semiconductor equipment makers from Japan and China were among the biggest winners on Asian stock markets in 2021, with some doubling their valuation from the end of the year before amid robust demand for hightech manufacturing.
After a Covid-driven stock market boom that produced a number of high-flying digital companies in 2020, Asian bourses had a relatively tough year in 2021, with Chinese regulatory crackdowns weighing on many of the country’s — and the region’s — most significant companies.
But global chip demand has given rise to some lesser-known companies, with logistics and financial companies also growing as the economy gradually recovers from the pandemic.
Nikkei Asia compared changes in market capitalisation last year by about 600 of the largest Asian companies that had a valuation of US$10 billion at the end of 2020. About 50% of them increased in value, while the other 50% lost over the 12 months.
Among the top winners was Lasertec, a Japanese company whose market capitalisation rose 162% to ¥2.9 trillion yen ($26 billion).
Lasertec is a niche player in the semiconductor industry, manufacturing an inspection device for photomasks — a tool for creating a circuit pattern on silicon wafers. An almost exclusive supplier of such devices for cutting-edge masks called EUV, Lasertec drew investors’ attention throughout last year.
State-backed Naura Technology Group, China’s largest maker of chip equipment, increased its market value by 103% to 182 billion yuan ($28 billion). In the first nine months of 2021, its net profit more than doubled on the year to 658 million yuan.
A rival of Applied Materials of the US and Tokyo Electron of Japan, Shenzhen-listed Naura raised 8.5 billion yuan in December through a private placement to expand production capacity and enhance research and development.
Apart from semiconductor stocks, steady manufacturing demand in the Covid-19 recovery phase helped commodity-related stocks rise. Among the top 10 winners were the Chinese marine shipping group Cosco Shipping Holdings, up 110%, and Tata Steel of India, up 83%.
Yet overall, Asian stocks underperformed global stocks in 2021. The benchmark MSCI All Country Asia Index dropped 1%, versus a 17% rise by the MSCI All Country World Index.
“The most dominant local story for Asia stocks has been China,” said Chetan Seth, an equity strategist at Nomura in Singapore. “Tightening macro- and micro-regulations have caused significant discomfort for equity investors and were the reason for China’s underperformance in 2021,” he said, referring to Beijing’s clampdown on the property sector and regulations on sectors such as education, e-commerce and fintech.
China’s education businesses were the biggest losers of the year. Market valuations of the private tutoring companies Gaotu Techedu and TAL Education sank 96% and 94%, respectively. Tens of thousands of teachers were laid off after companies were forced to turn into nonprofit entities under a government policy to ease students’ workload and their parents’ financial burden.
China’s most prominent tech companies — Alibaba Group Holding and Tencent Holdings — both dropped out of the global top 10 in market capitalisation, with their valuations decreasing 51% and 22%, respectively, in 2021.
They came under pressure chiefly from two key pieces of legislation that sought to regulate monopoly business and data security, on top of greater scrutiny by US authorities amid geopolitical tension with China.
The tighter regulations are seen as a sign that Beijing is focusing more on “hard” technologies such as the semiconductor industry rather than on consumer internet, said Dan Wang of Gavekal Research.
The biggest winner of 2021 turned out to be China Telecom, one of the three state-owned oligopolistic carriers, which recorded a market capitalisation increase of 162% — but this comes with a serious caveat.
The substantial leap in its market value came mainly from a new listing in Shanghai in August, for which it had powerful state backing. The move came after China Telecom was forced to delist from New York due to alleged links with China’s military.
Listing on mainland Chinese bourses is fundamentally different from listing in other markets, as Beijing restricts the free flow of equity investment with the rest of the world. This means the pricing mechanism differs even for the same company traded in the mainland and elsewhere, like Hong Kong.
The Hang Seng Stock Connect China AH Premium Index, for instance, which tracks the price differential for dual-listed shares, stood at a 43% premium on mainland-listed stocks as of Jan 11. As such, it is difficult to say whether the sharp rise in China Telecom’s market cap reflects a fundamental change in the value of the company.
When it comes to digital stocks outside of China, the Singaporean e-commerce and online gaming group Sea, the biggest winner in Asia in 2020, continued to gain but at a much slower pace of 24%, while South Korea’s Kakao rose 48%, suggesting investors still expect growth in digital services as the pandemic transforms lifestyles.
Meanwhile, a gradual recovery from the pandemic has helped financial stocks, as seen in markets like India. Shares in the government-owned State Bank of India, the country’s largest commercial lender, rose 62%. It has a strong liability profile and the best operating metrics among public-sector banks, which helped its stock perform better than peers.
Bajaj Finserv, the financial services arm of India’s Bajaj group, increased in value by 78%. The company has a presence in retail finance, life insurance and general insurance. In August, the Securities and Exchange Board of India gave it in-principle approval to sponsor a mutual fund. Analysts see the company’s wide distribution reach and focus on profitability as some of the reasons the stock was among the region’s top picks.
On the other hand, signs of a Covid recovery left some companies facing reduced demand, particularly makers of healthcare products. Among the biggest losers in Asia were Malaysia’s Top Glove, the world’s largest maker of rubber gloves, and its local peer Hartalega. Their market values shrank 66% and 56%, respectively, in 2021.
Looking ahead, analysts say semiconductor and equipment makers will continue to benefit amid solid demand for chips for use in servers, reflecting a strong appetite for investment by cloud service providers like Amazon, Microsoft and Google.
“High-performance processors used in data centres will be in strong demand,” said Hisashi Moriyama, an analyst at JPMorgan, predicting another busy year ahead for high-end chip foundries like Taiwan Semiconductor Manufacturing Co, which is now the most valuable company in Asia.
With respect to China, Seth of Nomura said its fiscal and monetary policies are becoming more supportive as authorities focus on supporting growth. “This will help China stocks, and consequently the performance of Asia, as the region’s largest market,” he said.