Analysts bullish on chip stocks in 2020, wary of petrochemicals and steel

Chip and IT stocks are expected to rebound next year while chemical and steel categories will continue to suffer due to the global economic slowdown, according to Korean analysts’ outlook for 2020.

Eleven of the 12 research centers at local brokerage houses projected chip stocks to recover next year, according to a study released by Maeil Business Newspaper Sunday.

The semiconductor industry suffered a bust cycle this year as a memory supply glut sent chip prices tumbling in double digits, dealing a heavy blow to the world’s two largest memory chip makers and Korea’s bellwether stocks Samsung Electronics and SK Hynix.

The analysts projected recovery in demand for server dynamic random-access memory (DRAM) chips and data servers, accelerated rollout of fifth-generation (5G) mobile networks and PC replacement demand.

“The anticipated increase in server demand from U.S. tech companies is expected to fuel the growth of server DRAMs,” said Kim Byeong-yeon, analyst at NH Investment & Securities. “The explosive data growth triggered by the dominance of video streaming is also a big plus for chipmakers.”

Another big growth driver is the adoption of 5G network. Data provider IHS Markit projected 5G smartphone demand to surge by 62 percent on year in 2023 from 11 percent in 2020. The usage rate of 6-gigybyte or higher memory chips in 5G-enabled phones is also estimated to rise to 47 percent from 27 percent during the same period.

China’s 5G commercial rollout on Nov. 1 will be a new impetus for growth. “Beijing has turned its attention to the domestic market to offset Huawei’s export woes from its trade war with the U.S.,” Kim noted. “Once China begins its 5G investment in earnest next year, it is expected to spend up to 1.5 trillion yuan ($213.8 billion) by 2025,” he added.

Video streaming platforms are also stocks to watch out for next year. The subscription rate of over-the-top video viewers against the total U.S. population exceeded 50 percent last year, with the number to reach 56.3 percent next year, according to the U.S. market research firm eMarketer. The battle is expected to become even fiercer as Apple and Disney have launched their own streaming services to challenge the current streaming king Netflix.

Stocks related to organic light emitting diode (OLED), the next generation of display technology, are another a bright spot. According to IHS Markit, Korean makers account for nearly 90 percent of the world’s OLED market and enjoy significant technological headway compared with their Chinese rivals, which are still focused on cheaper LCD panels. Market outlook is also strong on the potential surge in demand from 5G and foldable phones. Samsung Display recently vowed to invest 13 trillion won ($11.2 billion) in developing its quantum dot (QD)-based OLED technology. LG Display also pledged to pour another 3 trillion won into its OLED lines on top of its 30 trillion won investment over the past decade.

Outlook for the petrochemical and refinery industries, however, were murky due to the rise of green vehicles and the anticipated long-term decline in oil demand.

Steel stocks were also headed for a rough year, with steel prices to be weighed heavily by China. “The global steel industry is affected largely by China’s net exports but there have been movements of China upping its steel exports,” said Min Sa-young, analyst at Meritz Securities, adding that even a small slowdown in China’s property market could prompt the government to shift its steel shipments overseas.

Korea’s insurance industry is also up against multiple whammies from the low interest rate, near zero birthrate and stiff regulations. Insurers have been struggling to generate solid returns as the policy rate has fallen to record low levels. The country’s alarmingly low birthrate is another factor seen as dampening insurance demand.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]