Asian memory chip stocks have experienced a parabolic rally this year, with Japanese listed Kioxia, Korean-listed SK Hynix and Samsung up 3600%, 950% and 508% respectively over the past twelve months.

But the explosive share price performance of Asian memory stocks is not necessarily indicative of a bubble, according to Nick Wilcox, who told a recent media roundtable in Hong Kong that there are fundamental drivers behind the rally.

“Whilst these names have done so well, they’ve done well for fundamental reasons,” he said. “They haven’t actually become overly expensive during that process. A lot of this has been driven by EPS [earnings per share] revisions.”

“I don’t think there’s a bubble within the memory space, or even the memory adjacencies,” he added.

“This is committed capital on a very long-term basis. What we’re investing in today is not a fictitious or an optimistic hope that this demand is there. It’s real.”

Memory chip manufacturers have enjoyed a surge in the price of their chips on the back of demand for artificial intelligence (AI) needs, and Wilcox said these firms have “done a good job of managing capacity”

He said: “We’ve seen this ever-increasing level of capex coming out of the hyperscalers, but actually most of the big memory players have been quite slow to increase capacity, with a lot of it only coming on towards the end of this year, beginning of next.”

“Now, in part, that’s because new capacity in memory cannot just be invented or created overnight, it takes three to five years, but in part it’s been a deliberate act to manage supply chains.”

“I think what is interesting now is the visibility that we have on demand moving forward. A lot of these companies are signing very long-term agreements with their customers… so, from our perspective, there’s a lot more visibility now on the earnings trajectory.”

Elsewhere, Man Group has a positive view on Japanese equities more generally because aside from a few certain names in technology and defence, “valuations in Japan are absolutely standout, trading at a 70% discount to the US on a price to book” Wilcox said.

As of the end of last month, the MSCI Japan index traded at a price-to-book ratio of 1.97 versus the MSCI USA index at a 5.86 price-to-book ratio.

Additionally, Japan’s tilt towards more asset heavy sectors such as industrials is another advantage, according to Wilcox.

The MSCI Japan is has 25% in industrials versus the MSCI USA, where over 38% is in the information technology sector and just 8.6% is in industrials.

“We have very high exposure in Japan to some of these more asset heavy companies that up until recently we were avoiding in favour of capital light businesses,” Wilcox said.

“Those capital light businesses have morphed into quite capital intense businesses, and at the same time we’ve all been looking at the casualties or potential casualties of AI.”

“That leads you towards some of these more asset-heavy businesses, where AI is not going to disrupt what they’re doing, and that’s another big win for Japan. I think structurally there’s a real edge there in terms of the market composition.”