Head of Saxo Strats
Summary: Semiconductors have fallen from the pink skies as rising interest rates have compressed equity valuations making semiconductor stocks the fifth worst theme basket in our universe of themes. However, Samsung showed this morning in its Q2 results that things are maybe a bit less bad than feared, but the outlook comes with dark clouds and massive uncertainty. It does feel like it will get worse because it gets better for semiconductor. We still remain very bullish on semiconductors long-term due to the ongoing digitalization.
A horrible year
Semiconductors were a hot theme going into 2022 and one of our preferred equity themes based on long-term growth drivers such as electric vehicles adoption (EVs use 5x more semiconductors than normal gasoline cars), more datacenters, Internet of Things, and continued growth in consumer electronics. However, these rosy assumptions faced stiff headwinds this year from rallying bond yields compressing equity valuations in semiconductor stocks causing our semiconductor theme basket to decline 34% this year making it the fifth worst basket this year.
Samsung has reported preliminary Q2 results this morning and South Korean electronics maker reported KRW 77trn in Q2 revenue up 21% y/y and a 1% decline q/q from Q1. This was a bit better than expected, but operating income was KRW 14trn up 11% but lower than estimates of KRW 14.6trn suggesting cost pressures are larger than expected. While the market has rewarded Samsung for its Q2 results management sounded uncertain on the earnings call warning investors of immense challenges over its outlook due to inflation and the war in Ukraine. Samsung also said that consumers and enterprises are reducing their spending due higher interest rates and inflation are hitting disposable income.
Samsung’s results show that the industry is still growing but that considerable downside risks exist and that it could get worse for semiconductors before its gets better. Long-term we remain very positive on the semiconductors industry as it is a pivotal industry for the continued digitalization of the world, which is a trend that will continue at full speed the next decade.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
