Will the semiconductor crunch continue?

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December 2021
 

Investment managers and analysts should seriously consider the range of potential threats and opportunities facing global markets in 2022. Here, George Saffaye, global investment strategist at Newton Investment Management, outlines his biggest concern for the year ahead.  In addition, Justin Sumner, lead research analyst at Newton Investment Management, outlines his thoughts on the prospects facing the global blockchain market in the year ahead.

One of the biggest concerns or threat we are focused on in 2022 is the easing of the semiconductor shortage that has plagued the industry.  The semiconductor-supply shortage has led to multiple auto original equipment manufacturers (OEMs) curtailing production.  This has led to overall tighter global supply of vehicles, with auto inventory especially tight in the United States, with some major car manufacturers heavily impacted by the lack of vehicles.

Inventory is tight in China, too, but has not been as big an issue as in the US. Europe also is experiencing tight supply, but because vehicle sales are still not back to normal levels, the semiconductor shortages have been relatively less disruptive.  With that said, global auto production is being negatively affected by the semiconductor shortages occurring across global supply chains. According to several data points across the industry, the supply of auto-related semiconductors should improve in early to mid-2022, as chip manufacturers allocated more capacity to the group. As the auto chip shortages start to progressively lessen, we believe there will be a strong restocking cycle because the industry has inventories in key regions.  

We believe there are some long-term opportunities for select names in the group who are well positioned to gain share from new electric vehicle launches.  Auto inventories also have been cut to near historical lows, which has led to robust pricing conditions and strong margins for auto manufacturers.  The inventory tightness, while positively affecting near-term results, may well extend and sustain demand over the next several quarters and also may promote more attractive structural pricing and margins for the industry.   

Further, we believe that the conditions for semiconductors  are improving for the downstream auto supply chain, as evidenced by the pullback in tech equipment supplier delivery times, a good proxy for the bottleneck conditions that have plagued the industry.

George Saffaye, global investment strategist, Newton Investment Management

Will blockchain growth accelerate in 2022?

We have seen blockchain adoption accelerate at a frantic pace as the year progressed.  This happened in the face of the market absorbing the cryptocurrency crackdown in China and an evolving, but unclear, regulatory environment for digital assets around the globe. 

Looking forward to next year, we expect these trends to be even further solidified, as we see constructive regulation continuing to develop and which should provide clarity for the adoption of digital assets and the products and solutions they enable. 

In our opinion, this should further accelerate global participation in the market, as companies continue to create innovative and disruptive use cases for blockchain more broadly, bringing advancements in speed, safety, and security across decentralized finance, enterprise, and the emerging asset-tokenization market.

Justin Sumner, lead research analyst, Newton Investment Management

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