Macquarie: Quality stocks outperform in Asia amid global sell-off

Quality stocks outperformed in Asia during the recent risk-off sell-off while momentum factors were broadly sold and earnings revisions across the region remained resilient. China rotated toward value, Korea tilted to value/quality (strong revisions but weak performance), Taiwan was the sole market where momentum held, and Japan showed broad sector strength with property delivering the strongest revision momentum. Portfolios shifted from growth to value on a market-cap basis, with a defensive overweight and renewed focus on capital management and profitability.

Analysis

AI infrastructure remains the highest-conviction secular theme: constrained OEM capacity and accelerating enterprise FPGA/GPU refresh cycles mean companies that can deliver turnkey, short-lead-time rack solutions capture outsized margin expansion. For a vendor like SMCI, that dynamic can translate into >20% revenue upside versus peers over 12 months if enterprise orders shift from in-house builds to integrated platforms, but near-term multiple compression in risk-off markets can shave 15–25% off realized gains within 3 months.

Advertising-dependent growth names face a classic operating-leverage trap: a 5–10% pullback in global ad spend typically produces 20–35% EBITDA downside at firms with thin gross margins, making APP-style monetization models vulnerable to fast downside revisions. That sensitivity also creates dispersion — companies with >40% programmatic ad exposure are most at risk of a rapid rerating if macro revenue guidance misses by a single quarter.

Second-order supply-chain effects matter: renewed demand for dense AI racks will pull forward purchases of high-end PSUs, NVLink-capable switches, and cooling solutions, pressuring lead times and widening component price differentials vs commodity servers over 6–12 months. Conversely, a short-lived rotation back to growth (Fed pivot or better-than-feared US payrolls within 30–90 days) would quickly re-price momentum names and cut the value-quality premium, compressing the carry on long-dated hardware investments.

Given these mechanics, trade construction should be asymmetric and time-boxed: capture secular upside in AI hardware with capped downside (option structures or hedged equity) while shorting ad-tech cyclicality via spreads or pairs. Size allocations should be idiosyncratic risk-limited (1–2% NAV per directional trade) and reevaluated on macro data releases and major earnings beats/misses within the next quarter.

Key Decisions for Investors

• Buy SMCI via a 9-month call spread: long SMCI Jul-2026 $250 calls / short SMCI Jul-2026 $350 calls — enter if stock under $230; target +40% return on premium if enterprise GPU cycle accelerates within 6–9 months; max loss = premium paid. Rationale: captures secular AI rack demand while limiting downside from short-term risk-off multiple compression.
• Pair trade: Long EEM (Emerging Markets ETF) 3-month position vs Short QQQ equal notional — implement immediately with 1–1.25% NAV risk. Expect EM value/quality re-rating to outperform US mega-cap momentum in a sustained risk-off/stagflation backdrop over 1–3 months; cut if 10-day realized correlation to US equities drops below 0.6.
• Short APP via a 3-month put spread: buy APP Aug-2026 $25 puts / sell APP Aug-2026 $15 puts (debit). Entry if APP rallies above $35 (bad time to short expensive momentum); target 2.5x return if ad-revenue guidance misses by one quarter; max loss = premium paid. Rationale: protects against steep downside if ad budgets compress.
• Hedged equity for hardware exposure: buy SMCI stock (or long call spread above) and hedge with -0.5 delta of NVDA Jan-2027 put options (or equivalent semiconductor proxy) sized to limit portfolio drawdown to ~6% NAV. Timeframe 6–12 months to capture backlog conversion while protecting against a macro-driven sell-off that hits the whole AI supply chain.