December 9, 2023

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Shares of Taiwan Semiconductor Manufacturing Co, the world’s largest chip maker, rose as much as 5% in Asia on Wednesday morning after Morgan Stanley recommended the stock.

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“We expect a recovery of a semiconductor cycle in 2H23 and suggest bargaining in quality stocks right now. TSMC is our top choice,” the investment bank said in a note on Tuesday. It portrayed TSMC as “the originator of the technology of the future”.

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The stock was trading with a gain of 3.73 per cent in afternoon trade. US-listed shares of TSMC rose nearly 5% overnight.

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Morgan Stanley analysts said chip stocks such as TSMC, Global Wafers Company and MediaTek are on weak valuations following a sharp market correction.

Meanwhile, the secular trends of 5G, artificial intelligence of things and electric vehicles — which require semiconductors — are not reversing, the bank said.

A chip recovery would also be supported by falling prices of tech products and logistics, the reopening of economies – particularly in China, and a slow increase in production capacity for foundries, analysts wrote.

The note added that investors should prioritize investing in industry leaders with pricing power, who would benefit from secular growth stories and China’s semiconductor localization. Secular growth stocks are those that have long-term value and are not dependent on current economic conditions.

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In a separate note by Morgan Stanley on emerging markets in Asia, analysts recommended increased weight on the chip sector in those markets, along with South Korea and Taiwan.

“Both markets are dominated by semiconductors and technology hardware,” the note said.

“Our sector associates see the worst point for the inventory cycle as Q4 this year and next year on a sub-segment basis at the latest Q1. Stocks typically make their troughs before the inventory cycle makes its turn ”, it added.