Morning News & Views – Asia

• Taiwan Semiconductor Manufacturing Corp. (2330 TT) (Buy) – Street overreaction to new BIS regulation: TSMC’s observations on cycle and US’s new regulation largely echo our views; maintain Buy 
• Largan Precision (3008 TT) (Buy) – 2023F: Apple and Huawei bringing opportunities: Upgrade to Buy on more growth opportunities from Apple and Huawei in 2023-24F; lift TP to TWD2,220
• Doosan Fuel Cell (336260 KS) (Buy) – On growth trajectory; lower TP to KRW39,000: Hydrogen growth story/DFC leadership look intact, but we lower earnings/TP to reflect a more realistic setting

Jobs report supports case for ongoing tightening

• Today’s UK labour market figures reported a larger-than-expected rise in payrolls – up nearly 70k between August and September versus consensus and our own forecasts of around half that.
• That’s actually a stronger monthly rise in this measure of employment than the average over the previous year.
• As a result, the 3m average of payrolls growth looks to have generally stabilised over recent months at an average monthly pace of between 40k and 60k.

Stellantis N.V., Upgrade to Buy: Attractive risk-reward

1. better-than-expected YTD net pricing strength in Stellantis’ major markets of North America and Europe;
2. lower risk of margin pressure from EV battery material prices in 2023, given STLA’s appropriately paced rollout of EVs in North America (compared to the aggressive EV ramp-up plans of its Detroit peers);
3. benefits from post-merger platform consolidation in Europe starting in 2023; and
4. easing raw material prices, especially for steel, and tailwinds from a strong USD (vs EUR). 

Tech companies are lowering 2023 expectations, and that might help tech stocks bottom

• We think that tech company earnings reports over the next few weeks will help investors calibrate their expectations with regard to the current technology downturn. 
• We remain cautious on semiconductor stocks and, more broadly, technology stocks at the moment.
• We are currently projecting that a cyclical bottom in semiconductor demand might occur in 1H23 with y-y chip sales comparisons improving from June 2023 onward. This might suggest a sustainable recovery in chip stocks could begin at some point in the first half of 2023, though there are multiple risks that could delay the recovery in chip fundamentals and in chip and technology stocks.

Q3 is set to mark the start of the UK’s recession

• UK economic output was weaker than expected, falling by 0.3% m-o-m in August and taking GDP to its lowest level since the end of last year.
• GDP has now fallen back to roughly the same level as it was pre-pandemic, and a further decline looks likely in September as a result of the additional bank holiday for the Queen’s funeral.
• Consumer-facing services fared particularly poorly in August, with arts & entertainment and accommodation & food reporting declines, as well as households as employers (nannies, gardeners etc). 

By Nomura