Iran War Risks Prying Asia’s Tech, Consumer Shares Further Apart

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(Bloomberg) — The Iran conflict may help Asian technology shares further outperform their consumer peers, as concerns rise that the war’s inflationary impact will outweigh its damage on artificial intelligence supply chains.

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A gauge of Asian tech shares has gained over 19% this year, while its consumer discretionary counterpart has fallen almost 7%. Both of them have lost more than 9% since the war began. 

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Money managers expect the chasm to widen further on wagers that geopolitical tensions won’t stymie the world’s artificial-intelligence buildout, though they’ll crimp household spending.

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“We’re seeing foreign capital flows be directed in a more concentrated manner toward AI-linked sectors compared to consumer sectors in Asia,” a trend that may intensify over the coming year, said David Chao, global market strategist at Invesco Asset Management. Cyclical shares are likely to attract a higher risk premium, pointing to a bifurcation between AI-related stocks and those tied to “more real economy sectors,” he added.

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Tech stocks are the top gainers in a key Asian equities benchmark this year, boosted by AI beneficiaries such as chipmakers Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. Meantime, consumer shares have lagged amid concerns over inflationary pressures, with households already grappling with higher energy bills. Indian food ordering firm Swiggy Ltd. and travel retailer China Tourism Group Duty Free Corp. are among the sector’s worst performers.

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The divide is poised to deepen as the war continues because AI investment remains a structural theme, said Vey-Sern Ling, managing director at Union Bancaire Privee. Though the chip producers won’t be immune to selloffs, “they will see far less demand erosion” than consumer firms, said Ling. 

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For BNP Paribas, many clients are positive on memory chips’ cycle but more cautious outside tech, especially for South Korean names, William Bratton, the firm’s head of cash equity research for APAC, wrote in a note. That stance “aligned with our view that the South Korean non-tech sectors were relatively expensive with limited support from upward earnings revisions,” he added.

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Asia’s tech benchmark trades at around 12 times forward earnings, below the consumer discretionary gauge’s multiple of nearly 15 times. While that valuation gap suggests markets have not yet priced in restored confidence, it’s also enticing bets that tech shares are tipped for a stronger recovery than their consumer peers.

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“At current valuations and with strong balance sheets, we see scope to selectively add leading Asian internet and tech franchises, which are relatively insulated from war‑related supply chain shocks and could rebound as fears around AI disruption stabilize,” said Gary Tan, a fund manager at Allspring Global Investments.

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The sentiment surrounding consumer shares may not pick up until there’s more certainty on the endgame of the Iran war, said Invesco’s Chao.

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“If you’re spending more money at the gas station, you’re likely to decrease your spending on other products,” he said. “So there continues to be headwinds for consumer-related sectors until it becomes clearer in the Middle East.” 

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