Back in February 2009, our buy argument was based on our view of stabilising end-demand, normalising inventory and supportive valuations. We believe that this has largely played out. The surprise has been that tech unit demand, globally, has been meaningfully better than expected in the consumer space so far this year. The macro debate has now moved on from worrying about the depth and severity of the recession to the likelihood, and then, the durability and strength of the recovery. ■ In such a scenario, we believe that valuations should move towards the mid-point of their trading ranges. As we show inside, using our preferred DDM-based valuation methodology – we are already there. On P/B-based measures, tech is clearly quite cheap. The issue, however, is that of low ROEs. Hence, for P/Bs to rise further, investors need to have confidence in an earnings recovery. ■ Earnings are indeed recovering. Tech has been the only sector that has seen significant upgrades from March and into May. In our view, earnings estimates are likely to be revised up more. However, the next round of meaningful upgrades is likely to happen as we get early signs of the tech “busy-season” beginning in July and upgrades are likely to be more sub-sector/stock-specific rather than for the sector as a whole. ■ In this report, we provide a sensitivity of index targets to various levels of near- and medium-term earnings growth. We believe a 20% rise in MSCI Asia ex. Japan Asia tech is still quite likely over the next six months, though the lack of positive momentum in revenues in the rest of this quarter (and the strength of the recent rally) may weigh in the near term. Investors are better off sticking with sub-sectors that provide the most visible earnings recovery story and are still trading in the lower half of their relevant valuation trading ranges.