Semiconductor equipment manufacturers from Japan and China were among the biggest winners in the Asian stock market in 2021, doubling their valuation from the end of last year amid robust demand for high-tech manufacturing.
After the Covid-fueled stock market boom in 2020 that spawned soaring digital companies, Asian equity markets had a relatively difficult year in 2021 as China’s regulatory crackdowns weighed on many of the country – and region’s – top stocks. However, global chip demand has given some lesser-known companies a boost, with logistics and financial corporations growing as well as the economy gradually recovering from the pandemic.
Nikkei Asia compared changes in market capitalization of about 600 of the largest Asian companies, which valued 10 billion at the end of 2020, while the other lost 50 percent over the 12 months.
One of the top winners was Lasertec from Japan, whose market capitalization rose 162 percent to 2.9 trillion yen (US $ 26 billion) over the course of the year.
Lasertec is a niche supplier in the semiconductor industry and manufactures an inspection device for photo masks – a tool for creating a circuit pattern on silicon wafers. The device ensures that the photomask patterns are accurate and free of defects. As an almost exclusive supplier of such devices for the most modern EUV photo masks, Lasertec attracted the attention of investors throughout the year.
China’s state-backed Naura Technology Group, the country’s largest manufacturer of chip devices, increased its market value by 103 percent to Rmb 182 billion (USD 28 billion). In the first nine months of 2021, the net profit more than doubled compared to the previous year to 658 million Rmb.
Shenzhen-listed Naura, a rival of Applied Materials from the US and Tokyo Electron from Japan, raised Rmb 8.5 billion through a private placement in November to expand manufacturing capacity and improve research and development. Such a move reflects President Xi Jinping’s call for self-reliance in high technology.
This article is from Nikkei Asia, a global publication with a unique Asian perspective on politics, economics, economics and international affairs. Our own correspondents and outside commentators from around the world share their views on Asia, while our Asia300 section provides in-depth coverage of 300 of the largest and fastest growing publicly traded companies from 11 economies outside of Japan.
Subscribe | Group subscriptions
Semiconductor stocks aside, steady manufacturing demand during the recovery from Covid-19 contributed to a surge in commodity-related stocks. Among the top 10 winners were the Chinese maritime shipping group Cosco Shipping Holdings with an increase of 110 percent and the Indian steel manufacturer Tata Steel with an increase of 83 percent.
Overall, however, Asian stocks fared worse than global stocks in 2021. The benchmark MSCI All Country Asia Index lost 1 percent to December 21, while the MSCI All Country World Index rose 17 percent.
In 2021, “China was and it remains the most dominant local story for Asian stocks,” said Chetan Seth, equity strategist at Nomura in Singapore. “The tightening of macro and micro-regulation has caused significant inconvenience for equity investors and is the reason for China’s underperformance in 2021,” he said, referring to Beijing’s crackdown on property and regulation in sectors such as education, e-commerce and fintech.
As such, China’s education companies were the biggest losers of the year. Market valuations for private tutoring companies Gaotu Techedu and TAL Education Group fell 96 and 94 percent, respectively. Tens of thousands of teachers have reportedly been laid off after companies forced companies to transform themselves into nonprofits as part of government âdouble cutâ policies to ease student workloads and the financial burden on their parents.
China’s best-known tech companies – Alibaba Group Holding and Tencent Holdings – have both dropped out of the top 10 global market cap rankings, with their ratings falling 51 percent and 22 percent respectively in 2021.
They came under pressure from two major laws designed to regulate monopoly businesses and data security, in addition to increased scrutiny by US authorities amid geopolitical tensions with China. The stricter regulations are seen as a sign that Beijing is focusing more on hard technologies like the semiconductor industry than on the 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 posted a 162 percent increase in market capitalization – but that comes with one serious caveat.
The significant rise in market value was primarily the result of the company’s new listing in Shanghai in August, for which it had strong government support. The move came after US authorities forced China Telecom to pull out of New York due to alleged links to the Chinese military.
Listing on mainland China stock exchanges is generally viewed as fundamentally different from listing in other markets, as Beijing restricts the free flow of stock investment to the rest of the world. This means that the pricing mechanism is different even for the same company trading on the mainland and elsewhere, such as Hong Kong. For example, the Hang Seng Stock Connect China AH Premium Index, which tracks the price differential for double-listed stocks, was 47.1 percent on December 24th versus mainland listed stocks. Therefore, it is difficult to say whether the sharp increase in China Telecom’s market capitalization reflects a fundamental change in company value.
When it comes to digital stocks outside of China, Singapore’s e-commerce and online gaming group Sea, the biggest winner in Asia in 2020, continued to gain, albeit at a much slower pace of 24 percent, while South Korea’s cocoa rose 48 Percent up, suggesting investors continue to expect growth in digital services as lifestyle changes as the pandemic changes.
Meanwhile, the gradual recovery from the pandemic has helped financial stocks, as seen in markets like India. Shares in the state-owned State Bank of India, the country’s largest commercial lender, rose 62 percent. It has a strong liability profile and the best operating metrics among public banks, which has helped its stock outperform its peers.
As the economic recovery gained momentum in recent months, the bank’s “overall strength as a franchisee” and “adequate pension coverage” should continue to work in its favor, brokerage firm ICICI Direct said in a November research note.
Bajaj Finserv, the financial services arm of the Indian Bajaj Group, increased in value by 78 percent. The company operates in the retail finance, life insurance and general insurance sectors. In August, she announced that the market regulator, the Securities and Exchange Board of India, had agreed in principle to sponsor a mutual fund. Analysts see the company’s vast sales reach and focus on profitability as some of the reasons the stock was among the top picks last year.
On the flip side, signs of a recovery in Covid have seen some companies face lower demand, particularly healthcare product manufacturers. The biggest losers of the year in Asia included Malaysia’s Top Glove, the world’s largest manufacturer of rubber gloves, and its local competitor Hartalega. Their market values ââfell by 66 and 56 percent respectively in 2021.
Looking ahead, analysts say semiconductor and device makers will continue to benefit from the solid demand for chips for use in servers, reflecting the strong investment appetite of cloud service providers like Amazon, Microsoft and Google.
“There is strong demand for high-performance processors used in data centers,” said Hisashi Moriyama, an analyst at JPMorgan, predicting another busy year for high-end chip foundries like Taiwan Semiconductor Manufacturing Company, which is the world’s most valuable company Asia.
Nomura’s Seth said he was “quite constructive on Asian stocks in 2022”, despite noting that the Omicron coronavirus variant and the recent restrictive US Federal Reserve swing would likely result in some volatility in the first quarter .
Turning to China, Seth said its fiscal and monetary policies will become more supportive as authorities focus on supporting growth. “This will help Chinese equities and therefore the performance of Asia as the largest market in the region,” he said.
Additional coverage from Mitsuru OBE in Tokyo, CK Tan in Shanghai, Kenji Kawase in Hong Kong and Kiran Sharma in New Delhi
A version of this article was first published by Nikkei Asia on December 27, 2021. Â© 2021 Nikkei Inc. All rights reserved