China Talk: Electronics market is experiencing a downfall

  • China's electronics market faces a downturn due to supply chain normalization and a global economic slowdown.
  • Outlook may improve in 2024 with a stabilizing global economy, eased tensions, and anticipated Beijing stimulus.
  • Watch for potential bottoming of the cycle and the growth opportunities in AI.

The electronics market in China is experiencing a downturn. The weakness in the electronics market appears to be linked to a couple factors.

Firstly, the global electronic supply chain is normalizing after pandemic-related disruptions. With supply constraints easing, prices and sales are coming under pressure. Secondly, the global economy is slowing down, dampening demand. And the rising geopolitical risks between China and the US have further impacted trades and exports to major Western markets for Chinese electronics vendors.

The outlook, however, may improve in 2024 if the global economy stabilizes. Any easing of tensions between China and the US could also help improve economic prospects. Additionally, stimulus policies expected from Beijing in coming months could aid the electronics industry.

For now though, China's electronics market faces strong headwinds. The industry must brace itself for a potential protracted slump in one of the world's top regions for electronics sales.

Our View

We have been cautious on the outlook of consumer electronic industries, such as mobile handset and PC, and have been underweighting the technology sector in China throughout this year. However, we are now paying close attention to potential bottoming of the cycle given the hefty correction of the sector over the last 2 consecutive years. Their current lean inventories and potential improvement in demand on replacement cycle may trigger valuation recovery for China technology stocks. We are closely monitoring on the changes of supply and demand dynamic to identify the timing of such opportunity ahead.

In the meantime, within the technology sector, we are currently focusing on AI opportunity, such as AI server related suppliers which are witnessing strong demand from various internet giants rushing into capturing the share in AI market. We see tremendous growth opportunities in AI given its early stages, and the enormous computing workloads required and thus the surging demand for advanced semiconductor chips.