TOKYO - Japanese investors may be starting to redirect money from semiconductor and memory-related stocks toward automakers and other value shares, as concerns grow that soaring memory prices, increased Chinese production and the search for cheaper suppliers could weaken the technology rally.
The shift has yet to become a full-scale rotation, but recent market indicators suggest that the investment environment has changed since the end of June. The Nikkei 225, which is heavily influenced by large semiconductor-related stocks, had previously outperformed the broader TOPIX as money poured into technology companies.
That relationship has recently reversed, with the TOPIX showing greater strength. The change can be seen in the Nikkei-TOPIX ratio, which rises when the Nikkei outperforms and falls when the TOPIX is stronger.
Until late June, the Nikkei benefited from sustained gains in semiconductor and memory stocks. Since then, however, investor interest has broadened and some funds appear to have moved from high-priced technology shares into value stocks.
The change has contributed to sharp market volatility. On one recent trading day, the Nikkei briefly fell about 4,000 yen before ending around 2,600 yen lower. The Philadelphia Semiconductor Index, which tracks major U.S. chipmakers, and South Korea's KOSPI have also declined.
A retreat from technology stocks can have a particularly large effect on benchmark indexes because the sector attracted such a heavy concentration of investment during the rally. Even when some of that money moves into other industries, losses in highly valued semiconductor stocks can outweigh gains elsewhere.
One source of concern is the rapid rise in memory prices. If prices have climbed primarily because demand has temporarily exceeded supply, rather than because of a lasting change in underlying value, the imbalance could eventually break down.
Higher prices could also force hyperscale technology companies to reconsider the pace of investment. Major cloud and artificial intelligence companies are unlikely to stop investing altogether, but continued increases in component costs could pressure budgets and reduce the economic appeal of additional spending.
Even large listed companies must control costs, and some technology businesses are already carrying growing debt burdens. If memory prices continue rising, certain companies may reach a point where they cannot maintain their current investment levels.
China represents another potential challenge. New Chinese semiconductor and memory companies have entered the market and are increasing production, raising the prospect of greater supply.
Reports have also emerged that Apple is considering procuring Chinese-made memory for products sold in China. No final decision has been made, and any transaction would need to take account of the U.S. government's position on dealings with Chinese companies.
The significance of the report lies not only in whether Apple ultimately proceeds. It also suggests that one of the world's largest technology companies is actively searching for alternative suppliers as memory costs rise.
Other companies are likely considering similar options. Should the United States permit even limited use of Chinese memory products, additional buyers could follow, encouraging Chinese manufacturers to expand production further.
That could normalize supply and push memory prices sharply lower. NAND flash memory may be especially vulnerable.
Demand for DRAM had originally been stronger, but NAND attracted increased interest when shortages emerged and some users found that it could serve as an alternative for certain storage requirements. If DRAM supply improves, part of the additional demand for NAND could disappear.
Memory manufacturers have generally been cautious about aggressively expanding production capacity because they recognize the risk of oversupply. A recovery in conventional supply, combined with greater output from China, could therefore place pressure on companies and indexes with heavy exposure to NAND producers.
That would affect the Nikkei and the KOSPI, both of which include major memory-related companies.
The search for alternatives is a natural response to high prices or uncertain supply. When a necessary product becomes too expensive or difficult to obtain, companies look for substitutes that provide acceptable performance and quality at a lower cost.
Restrictions on Chinese companies complicate that process. The Chinese suppliers mentioned in reports involving Apple are on U.S. defense-related blacklists, and one is also subject to trade restrictions. While some such lists do not directly prohibit transactions, they signal that the U.S. government discourages American companies from doing business with the listed firms.
A similar pattern can be seen in energy markets. When Middle East tensions raise oil prices or threaten supplies through the Strait of Hormuz, buyers increasingly seek alternative routes and suppliers. Memory buyers are likely to react in much the same way.
Market participants may have long understood that technology companies would eventually search for cheaper or more secure sources of supply. The uncertainty was when that change would begin, making it difficult for investors to reduce their exposure while semiconductor stocks continued rising.
Holding only semiconductor and memory-related shares has consequently become increasingly risky.
Automobiles and auto parts are among the sectors that may benefit if money continues leaving technology stocks. Since April, transportation equipment shares have moved in the opposite direction from electrical equipment stocks, a category that includes many of Japan's semiconductor and memory-related companies.
Institutional investors generally cannot leave large amounts of client money in cash indefinitely because doing so can be viewed as a missed investment opportunity. When funds flow into their portfolios, they are expected to put that money to work in financial assets.
The same principle applies when they want to increase holdings in one sector: they must often sell positions elsewhere to raise the necessary funds.
Since April, transportation equipment stocks have been sold as money flowed into high-tech shares. If the technology trade reverses, automobiles and auto-parts companies could become natural destinations for returning funds.
The shift is not yet conclusive, but the timing of the divergence between electrical equipment and transportation shares suggests that investors are beginning to reassess the balance between high-priced technology stocks and comparatively overlooked value sectors.
Source: テレ東BIZ
