Benzinga - The iShares China Large-Cap ETF (NYSE: FXI) traded higher by 0.2% on Monday after China relaxed some of its COVID-19 shutdown rules.
On Monday, Bank of America (NYSE:BAC) semiconductor analyst Vivek Arya said China's reopening could open the door for significant upside for top semiconductor stocks.
Semis Bouncing: The iShares Semiconductor ETF (NYSE: SOXX) had a horrendous first three quarters of 2022 but has bounced in recent weeks. In the past month, the SOXX ETF was up 12.9%. Arya said the recent rally could be from a combination of several catalysts, including bullish market technicals, strong seasonality, optimism about COVID-19 reopening in China or a downturn in inflation.
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Arya said the rally could simply be driven by expectations that China will drive a fundamental recovery in semiconductor demand in the second half of 2023, regardless of whether or not the U.S. economy slips into a recession.
"Even if the U.S. slows down in CY23, global chip demand could be boosted by a potential upturn in China (BofA Economists predicting solid acceleration to above-consensus 5.5%/6.5% China GDP in CY23/24E from 3% in CY22)," Arya said.
How To Play It: Heading into 2023, Arya remains bullish on top U.S. semiconductor stock picks, including Advanced Micro Devices (NASDAQ:AMD), Inc. (NASDAQ: AMD), NVIDIA Corporation (NASDAQ: NASDAQ:NVDA) and Broadcom (NASDAQ:AVGO) Inc (NASDAQ: AVGO). He said the recession in the semiconductor industry already happened, starting in the second quarter of 2022, setting the industry up for easy year-over-year comparisons in the second half of 2023 and into 2024.
While the consumer may be weakening, Arya said chip inventory adjustments have helped create a floor for the industry that may support stock prices.
Benzinga's Take: Semiconductor industry fundamentals may be improving, but it could still be difficult for semi stocks to gain much traction if U.S. interest rates continue to rise.
Long-term investors can simply ignore the medium-term volatility in semi stocks and continue to focus on long-term demand from secular growth sources, such as high-performance computing, artificial intelligence and the Internet of Things.
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