David Bassanese | Sep 26, 2018 13:03
Originally published by BetaShares
Although American based tech giants – such as Google (NASDAQ:GOOGL), Facebook (NASDAQ:FB) and Amazon (NASDAQ:AMZN) – are already household names, it may surprise some investors to know that Asia has technologically leapfrogged the US in several respects and has many successful tech megastars of its own. As this note will demonstrate, these Asian tech tigers provide Australian investors another tech-based global growth opportunity, and one that also offers handy diversification outside of the red hot US technology market.
h2 Asia – technologically leapfrogging the West/h2The 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*:
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 Australian 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.
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?
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*.
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