How is the semiconductor recovery expected to impact Asian markets in 2023?

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Semiconductor Revival to Drive Asian Market Rally in 2023

Global financial institutions are expressing a bullish outlook on South Korean and Taiwanese equities for 2023, anticipating that a recovery in the semiconductor industry will be a primary catalyst for market gains. This optimism is underpinned by several factors, including attractive valuations, currency movements, and expectations of renewed demand from China.
South Korea as a Top Rebound Candidate

Goldman Sachs has identified South Korean stocks as a leading "rebound candidate" for the upcoming year. This view is supported by the market's low valuations, further enhanced by a depreciating Korean won. The firm forecasts a potential 30% return in dollar terms, driven in part by an anticipated resurgence in Chinese demand. This positive sentiment is echoed by other major institutions such as Bank of America, UBS, Societe Generale, and DWS, all of which maintain a bullish stance on Korean equities.
Taiwan and Early-Cycle Leadership

Morgan Stanley, alongside its positive outlook on South Korea, also favors Taiwan, classifying both markets as "early-cycle" leaders poised to benefit from an anticipated recovery in demand. While Taiwan shares South Korea's characteristic of being a heavily sold, chip-maker dominated market, persistent geopolitical tensions with China remain a point of consideration for some investors. Despite this, the prevailing view among these institutions is that a significant portion of the geopolitical risk is already factored into current market prices.
Semiconductor Demand Bottoming Out

Sean Taylor, DWS's Asia-Pacific chief investment officer, projects that semiconductor demand will reach its lowest point in the first quarter of 2023. Historically, equity markets tend to experience rallies in anticipation of such demand recoveries, suggesting that the period leading up to the first quarter could see upward momentum. This perspective aligns with the general sentiment among the banks that the sell-off in Korean stocks during September and August was excessive, and that recent inflows of approximately US$6 billion since late June indicate a turning tide in foreign investor interest.
Japan's Diversification and Yen Tailwinds

Japan's market is also seen as attractive, offering exposure to semiconductors alongside benefits of security and diversification. The nation's weak yen is considered a significant tailwind for exporters and equities generally. Bank of America analysts advocate for an overweight allocation to Japan, believing its undervalued market levels will benefit equities, a view shared by Morgan Stanley, DWS, and UBS. Goldman Sachs, in particular, sees potential for Japanese equities in the latter half of 2023, anticipating increased inflows.

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How is the semiconductor recovery expected to impact Asian markets in 2023?

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