Although American based tech giants – such as Google, Facebook and Amazon – are already household names, it may surprise some investors to know that Asia has technologically leapfrogged the U.S. in several respects and has many successful tech megastars of its own. As this note will demonstrate, these Asian tech tigers – exposure to which is now available via our newest ETF on the ASX – provide Australian investors another tech-based global growth opportunity, and one that also offers handy diversification outside of the red hot U.S. technology market.
Asia – technologically leapfrogging the West
The United States has long been known as a technology leader in global markets. But due to its younger, tech-savvy population and less developed traditional retail, media and communication industries, it may surprise some investors to know that Asia is already surpassing the West in terms of online activity and many technological advancements.
Despite having a much lower per capita income, for example*:
- China had 772 million internet users as at end-2017, or more than twice as many as in the U.S.
- 20% of Chinese retail spending was transacted online last year, compared to only 10% in the U.S.
- 40% of online payments in China are made via mobile phone, compared to only 15% in the U.S.
Given this rapid embrace of the latest technologies, it should be no surprise that Asia (ex-Japan)’s technology sector has been a significant performer amongst global sharemarkets. Indeed, this sector returned 45% in $A dollar terms in 2017, and it has enjoyed annualised returns of 22% over the past 5 years to 31 December 2017 – compared to 13% for global shares in general (of course, this is not indicative of future performance and investment value can down as well as up).
It’s also no surprise that continued strong growth in Asian online activity is expected.
According to one study by Google and Temasek Holdings, South East Asia’s internet transactions – covering online bookings, gaming and retail spending – are forecast to grow at a compound annual rate of 20% over the 10-years to 2025, reaching almost $US200 billion. Online retail spending alone is expected to grow at an annual rate of 32% p.a., reaching $US88 billion.
Who are Asia’s tech tigers?
Although not yet necessarily household names in Australia, as seen in the chart below, Asia is home to four of the 10 largest technology companies in the world.
What are some examples of these disruptive organisations?
- Alibaba: Move over Amazon: China-based Alibaba is the world’s largest retailer. Its online sales and profits have surpassed all US retailers (including Walmart, Amazon and eBay) combined since 2015. As at 31 July 2018, Alibaba’s market cap stood at US$481B.
- Baidu: Move over Google: China-based Baidu has the #1 used search engine in China, with almost 60% of the market. By contrast, Google ranks only #6 in China. As at 31 July 2018, Baidu’s market cap was US$86B.
- Tencent: Move over Facebook: China-based Tencent has the most popular mobile social networking platforms in China, comprising QQ and WeChat. In a single minute, 26 million messages are now being sent out on WeChat alone. As at 31 July 2018, Tencent’s market cap was US$434B.
China’s technology market leaders are also relatively more dominant compared to their U.S. counterparts: for example, whereas 15 online publishers in the United States are able to reach 50% of the population, in China it takes just three to boast that degree of market reach.
What’s more, despite their growth potential, Asia’s leading online technology companies are not, at the time of writing, trading at demanding valuations by the standards of their US counterparts.
At end-July 2018, for example, the price-to-forward earnings (PE) ratio for leading Asian technology companies was around 13.3, compared to around 20 times earnings for shares within America’s tech-heavy NASDAQ-100 Index*.
BetaShares Asia Technology Tigers ETF (ASX code: ASIA)
So how can investors put a tech tiger in their portfolio? Thanks to the advent of exchange traded funds (ETFs) on the ASX, it’s never been easier.
The BetaShares Asia Technology Tigers ETF (ASX code: ASIA) provides access to a portfolio of the 50 largest technology companies in Asia (ex-Japan), which includes the Asian tech giants referred to above such as Alibaba, Tencent and Baidu – just to name a few.
In short, ASIA provides an easy, transparent and cost-effective way of tapping into this growth opportunity that is emerging right on our doorstep.
*References for the statistics cited in this post can be found in our ASIA ETF product brochure here.