Welcome to Thoughts on the market.

I'm Sean Kim, head of H.H.

Technology Research for Moore and Sandy.

Along my colleagues bringing you a variety of perspectives, I'll be talking about trends and themes impacting technology

stocks in the region. It's Tuesday, February 2nd at 8 PM in Hong Kong.

Technology stocks in Asia had a bit of a mixed year in the first half of 2020,

as both COVID-19 and trade tensions disrupted supply-demand dynamics.

But improved fundamentals and strong demand in all end markets suggests an optimistic outlook for 2021.

One particular area of strong demand is semiconductors,

where we're seeing shortages build in many parts of the supply chain.

Demand has exceeded capacity for logic,

way for foundry since late last year, alongside D-RAM and no-fledged

memory, ABF substrates, wire bonding, integrate circuits for display drivers and power

management, and soon passive components could be next.

What's interesting across semis is that current company valuations are very high, something that is not typical of early cycle, especially coming out of recession.

Normally in an early part of the economic cycle, customer inventories are very lean.

But on this one, companies were not able to draw down on inventory because of COVID supply chain issues.

Another factor was that China was blocked from purchasing components due to trade tensions.

So bottom line, we think there may be less room for multiple expansion.

Instead the focus will be on earnings revisions and we think the highest revisions will come

from areas with cyclical tailwinds such as memory and passive components.

We favor upstream parts of tech such as D-ROM and integrated circuit design companies where content growth and pricing power drive higher growth in relative earnings.

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