Goldman Sachs’ outlook for Greater China tech and top picks for 2023
By Hellen Oftroy 2 years agoChinese stocks are on investors’ radars once more, after the mainland announced a relaxation of Covid-19 restrictions that raised hopes of an economic recovery in the world’s second-largest economy. One segment of the stock market that has been particularly beaten down is the tech sector. Chinese tech stocks have endured some difficult years following a regulatory crackdown and the effects of pandemic restrictions, though the sector has recovered slightly on reopening hopes. The Chinese government is also unlikely to introduce new regulations for the internet tech sector and there could be more support going forward, according to Jonathan Krane, founder and chief executive officer of ETF provider KraneShares. “I think we’ve seen peak regulation,” he said in an interview with CNBC on Nov. 30. “I think that’s in the past,” said Krane. “I do not foresee much regulation going forward.” Goldman Sachs , however, has a mixed outlook on the sector for 2023. The investment bank expects “weak demand” for most sub-sectors next year, with the exception of software companies, for which it expects to see “stronger growth.” In a note titled “Greater China Tech: Demand outlook by sub-sectors; key indicators and top picks for 2023” on Dec. 9, the bank shared its outlook and top stock picks for the various sub-sectors. Software “China’s software sector is positioned well to achieve revenue growth acceleration in 2023 at 28% year-on-year, vs. 2022 at 14% year-on-year,” Goldman’s analysts, led by Allen Chang, said. This is on the back of resilient demand and revenue contribution from large enterprises in 2022, he added. Chang said he expects demand from these large enterprises to be “more visible” in 2023, while demand from small-and-medium enterprises could also surge in the second half of 2023 if China’s economy returns to normalcy. Goldman’s top picks in the automotive software segment include ThunderSoft, Desay and ArcSoft Corp, while the bank’s top pick in the cybersecurity software segment is Beijing Venustech. Smartphones Goldman expects growth in the smartphones segment to remain flattish in 2023, driven by soft shipments in China. “We remain selective in the smartphone market and prefer those stocks seeing market share gains, diversifying into new end-markets (e.g., automotive electronics), or seeing improving customer bases,” Goldman’s analysts, led by Allen Chang, said. His top picks include BYD Electronics, Lianchuang Electronic Technology and AAC Technologies. ABF substrate Goldman Sachs expects the Ajinomoto build-up film (ABF) substrate industry to see better revenue and margin growth from advanced applications such as networking, server and high-power computing. The ABF substrate is a key component in semiconductor chip manufacturing. Substrates made by ABF – an electrical insulator designed for complex circuits – are found in personal computers and routers. The bank’s top picks in this space include Taiwan-based Nan Ya Printed Circuit Board and Unimicron .