What is going on here?
The MSCI Asia Pacific Index is posting its biggest gain in more than three years thanks to the booming AI chip market.
What does this mean?
Semiconductor giants such as Samsung and TSMC are fueling this rapid growth, driven by rising demand for generative AI. Samsung expects AI-driven chip demand to remain robust throughout the year, while Taiwan's TSMC raised its 2024 revenue forecast. This optimistic outlook led tech companies in South Korea, Taiwan and Japan to rise, with EPS rising by 8%, 5% and 5%, respectively. China also saw its EPS forecast for the next 12 months rise by 1.5%, as some companies beat market expectations, despite investor caution.
Why should you care?
For Market: AI and Chips Power the Pacific.
The MSCI Asia Pacific index drew attention as 12-month EPS estimates rose 3.9%, posting their biggest increase in more than three years. This led to a 7.5% increase in outlooks for technology companies, while the communication services and consumer discretionary sectors each rose 5%. Growth is likely to continue as analysts expect the Federal Reserve's interest rate cuts to boost earnings and lift Asian stocks, which historically have seen average share price returns of around 10% after a rate cut.
The big picture: Asian markets are outperforming Western markets.
Asian stocks are likely to outperform their US counterparts, especially if the dollar weakens by 5-10%. Companies in the MSCI Asia Pacific Index reported a 29.2% increase in net profits in the second quarter compared to the same period a year ago. Utilities and healthcare stood out, with EPS up 20% and 8%, respectively. Insights from BNP Paribas and PineBridge Investments highlight the key role of the semiconductor sector and point to China's potential, which has been overlooked amid government support measures and a buoyant real estate market.
