How a Smart Asian Allocation Can Protect You During the Tech Slide

I assumed it would be a bloodbath in Asian equity markets today, following Tuesday’s 3.3% descent in the Nasdaq Composite, and the sudden negativity surrounding Nvidia NVDA. But that wasn’t the case.

There’s been selling, for sure. But only certain Asian markets have been hit hard. Others have held up.

The message is that, during this period of turbulence for the U.S. market and the tech leaders that have taken it higher for so long, it’s going to pay to diversify. The “sure bets” aren’t looking so certain anymore.

Protecting yourself against significant losses is more important for long-term gains than maximizing the upside when the bulls are running. So in this bearish turn, it’s wise to seek out safe havens.

The heaviest selling in Asia has come in the markets with the highest weighting toward chip stocks, and exports. So the Tokyo market, in the form of the Topix, fell 3.7%, and the blue-chip, multinational-heavy Nikkei 225 really took it on the chin, down 4.2%.

The other major decliners were Taiwan and South Korea, both with a big emphasis on semiconductors.

In Taipei, the Taiex fell 4.5% thanks in large part of the 5.4% fall in the company that dominates that market, chip foundry market leader Taiwan Semiconductor Manufacturing Co. TSM (TW:2330).

In South Korea, the Kospi ended the day down 3.2%, similar to Nasdaq. It was a brutal day’s trade for memory-chip maker SK Hynix HXSCL (KR:000660), down 8.0% on the back of declines in major customers such as Apple AAPL and Microsoft MSFT. A wider product range lessened the damage somewhat for Samsung Electronics SSNLF (KR:005930), down 3.5%.

Samsung has more arrows in its quiver, ramming home the importance of diversification. The glut of memory chips on the market pushed its semiconductor sales down from $73.2 billion in 2021 to $39.9 billion in 2023 (all these are in U.S. dollars, by the way). That’s one of its worst declines in history, provoking record losses, and leading to extremely flattering comparisons this year: Second-quarter total sales (not just chips) were up 23.4%, while operating profits skyrocketed 1,458%!

Hynix and Samsung are the world’s top memory-chip makers. Samsung is successfully expanding beyond smartphones, but its larger base of consumer electronics protects it when chip stocks sell off. Hynix and their chief U.S.-based competitor Micron Technology MU are joining Samsung in the push to generate high-bandwidth memory chips that go into Artificial Intelligence chipsets. Like Hynix, Micron suffered an 8.0% fall last session.

I say the selling is contained in Asia because other major markets like India and China barely budged. The Nifty 50 in Mumbai edged 0.3% into the red on Wednesday, with the Sensex down a similar amount. But that was snapping a 14-day winning streak for Indian equities. The Nifty is still up 15.9% so far this year.

The companies on the subcontinent that are suffering are those that generate a hefty chunk of their revenues stateside. Still, outsourcing giant Infosys INFY (NSE:INFY) was contained with a 1.1% fall on Wednesday, slightly better than its 1.3% slide on Wall Street the day before.

Chinese stocks have been challenging for the better part of the last three years. But the Biden administration’s efforts to curb the export of high-end chips and chip technology to the region actually insulate it in these market conditions.

The CSI 300 index of the largest listings in Shanghai and Shenzhen fell just 0.7% today. In Hong Kong, where the buying and selling by international investors is normally expressed, the Hang Seng fell 1.1% on Wednesday.

I explained in my last column that it’s possible to make smart plays even in the challenging environment for China shares by watching for companies that are buying back their shares. I cited a couple of examples, and will look for more.

Indian equities have known none of the negativity facing Chinese stocks. In fact, they’ve been a major beneficiary, alongside Tokyo stocks, from money being moved away from China by global investors with an Asian allocation.

U.S. stocks do look "toppish," and pricey. Indian equities and select China plays may help swathe a portfolio with some Asian cotton wool to protect a portfolio from a chip and tech savaging.