Chinese Semiconductor Stocks Extend Rally on China's Stimulus Measures

By Sherry Qin

Chinese semiconductor stocks continued to rally in Hong Kong, buoyed by China's recent aggressive economic stimulus package as well as hopes for even more measures.

Investor sentiment has been boosted by Beijing's recent package of stimulus measures across multiple policy fronts as well as strong fund inflows into Chinese and Hong Kong equity markets, benefiting the chip sector, analysts said.

Some think Beijing could unveil additional fiscal measures in the near term, as the country returns from a weeklong National Day holidays, and investors will be closely monitoring the press conference by its top economic planner, the National Development and Reform Commission, on Tuesday.

China could unveil a modest fiscal package of up 1.5 trillion yuan to 2 trillion yuan, the equivalent of $212.8 billion to $283.7 billion, in the near term, UBS economists said in a research note.

They added that the package could be split between supporting households and corporates, and reducing local governments' financing gap.

Shares of Semiconductor Manufacturing International Corp., China's largest contract chip maker, put on 20% in Hong Kong on Monday, after surging 29% on Friday. Their gains over the past two sessions added HK$93.65 billion, the equivalent of $12.06 billion, to its market capitalization, Its smaller peer Hua Hong Semiconductor has gained over 40% since Thursday's close.

The strength in chip stocks is leading a broader market rally in Hong Kong. The benchmark Hang Seng Index rose 1.4%, taking its gain to 26% since the stimulus measures was announced.

With expectations of further stimulus from Beijing in the backdrop, the "overall foundry sector is on the pace of recovery with more stable pricing environment," Mizuho technology and semiconductor analyst Kevin Wang said.

The global semiconductor industry faced an industry-wide inventory glut last year after a pandemic-driven shortage of chips. This year, Chinese chip makers have been left out of the artificial-intelligence frenzy that surrounded industry leaders like Taiwan Semiconductor Manufacturing Co., which produces advanced chips. That's because the Chinese foundries mostly make less-sophisticated electronic products amid U.S. sanctions that restrict the export of advanced chip-related equipment to China.

Although Chinese chip makers have witnessed a gradual recovery in orders from domestic clients over the past two quarters, they still face oversupply concerns.

The rally in semiconductor shares over the past two sessions hasn't changed the outlook of China's chip sector, Wang said. He noted that the fourth quarter is a low season, the overall foundry sector should continue to recover in 2025.

"The only potential difference is whether strong stock market [could] drive economy and consumption in China," he added.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

October 07, 2024 03:56 ET (07:56 GMT)

Copyright (c) 2024 Dow Jones & Company, Inc.