a relevant section from this week's lead article in the economist regarding the outlook for Chinese big tech,
I think I've got enough exposure with VGS.
In China the party will remain the law. And the way that Mr Xi is using that power is making investors increasingly pessimistic. The government’s crackdown on tech darlings, from Ant, a fintech dynamo, to Tencent, a social-media giant, has served up a reminder of just how capricious its regulations can be.
Chinese officials say they are limiting the power of big tech platforms in order to to make the economy more competitive and thus more productive. Few investors buy that. Instead, the realisation has seeped in that Mr Xi’s references to communist ideology are, at some level, sincere. He appears to be uncomfortable with business leaders getting too rich. And he has made it his mission to reinforce the party’s grip on power. When he says “Government, the military, society and schools, north, south, east and west—the party leads them all,” he means it. This is not a basis for improving productivity you will find in many economic textbooks
Disclosure: this might come across as a bit of a ramble.
These comments about the ASIA ETF are very interesting. Personally, if you actually look at all the shares that make up the Tiger ETF I would argue the overall quality is just as good if not better than the NASDAQ 100 ETF when one considers the accessible market in the next 50years especially if nationalisation in TW major western countries returns and the belt and road continues to develop.
The Chinese have no intentions of destroying their top Companies. They are proud of them and excited in their position on the world stage. They have allowed them to flourish over the last 15-20yrs and they have been instrumental in helping lift 300m Chinese into middle class.
However, what they do want to do is ensure that other companies get a chance to develop and contribute to helping the next 300m people they wish to lift into middle class over the next decade. Therefore, providing them with the same opportunity the first major international Chinese companies were given and the first 300m people could access as they climbed their way up over the last decade. Thus, they do not wish to see this monopoly and wealth continuing to grow with no control preventing many with less of a chance of moving into middle class.
When it comes to regulation I would suggest things happen significantly quicker in China. This crack down will be all over before you know it and the western governments will still be stuck trying to decide what they should do with big tech. All the time simply posturing and doling out compromised solutions in an attempt to appease their voter base.
In China it's simple, a company is pulled into line, a fine is administered, the fine is paid the line is re-established. As a consequence, the company now knows where it is allowed to grow and where it needs to ensure there is adequate opportunity for competition.
The companies in the Asia Tigers 50 are not only some of the best companies in Asia but also the world. They are cash cows with access to the largest growing market. Their growth runways are also arguably larger as they have an opportunity to tap into a developing middle class in the Asian region that is only getting bigger. As time progresses support in Asia for these companies will only grow, firstly, as more people move into middle class and secondly, as more of the middle class shift to supporting home grown regional brands. Just like Micardo Librae outdoes Amazon in Latin America because they speak the language and know what the locals want.
Anyway in summary I think much of what is focused on and emphasised is what the media perpetuates because it's the story that sells.
Consequently, I think this has provided an attractive opportunity to buy into an ETF (just compare the earning multiples of some of these juggernaughts to some of their western peers) that more than likely will be significantly more expensive in 5yrs time than it is today.
disclosure: personal hold Asia ETF and will look to add it to my straw man account.
Thank you for this research. Do you think this combination of holdings will prosper in the near term or even long term, or is the risk from government action in China a problem?
Hi Strawman family!
I've put together a a very very short summary of what the companies in this ETFs do. Having had grown up in South East Asia alot of the names in this ETFs are quite familiar to me but for many most of these names would be new. In short, this ETFs is largely comprised of semiconductor technology companies, social media companies and VIEs (Variable Interest Entities).
Always do your own due dillegence and research before buying into this ETF. (the csv I extracted from the Betashares website is a few days old so apologies if the holdings have changed since then). Do let me know if I've made any errors - alot of the information here comes from a combination of company websites, skimming the IPO prospectus, Wikipedia and news articles. I'm also not an expert in the semiconductor industry so I've left things brief in some instances.
TAIWAN SEMICONDUCTOR MANUFACTURING: Manufactures semiconductors which is in incredibly short supply globally.
SAMSUNG ELECTRONICS CO LTD: Does not need much introduction in terms of consumer electronics. Other lesser known subsidiaries include diagnostic ultrasound systems, telecommunications and home automation software
ALIBABA GROUP HOLDING LTD: Note this is actually the variable interest entity (offshore shell) stock listed in the NYSE. There are restrictions placed by the Chinese government on foreign ownership and investment - shareholders of BABA do not have a proprietary interest in the Chinese-registered Alibaba company's assets.
TENCENT HOLDINGS LTD: The company behind WeChat, a messaging app widely used in China. Subsidiaries include mobile game development (world’s largest game vendor), It’s reach in China is expansive, and you can find more information on its website.
MEITUAN: Another Chinese ecommerce conglomerate. Subsidiaries include food a delivery platform, and a Groupon-style website.
SEA LTD: Listed in Taiwan, owns Shopee, Garena, and Seamoney. Shopee seems to be a marketplace popular in southeast Asia, while Garena is a gaming developer (mobile and PC) and esports organiser. Seamoney is an electronic payments company tied to the Shopee platform.
INFOSYS LTD: an Indian IT consulting multinational - provides business consulting, information technology and outsourcing services.
JD.COM INC: A Chinese online retailing company. Similarly to Alibaba this is not a holding in the direct company itself. The variable interest entity is listed on the NASDAQ exchange.
PINDUODUO: Another Chinese ecommerce business, but with a focus on agriculture and online groceries. Also another variable interest entity.
NETEASE INC: Predominately a Chinese mobile games developer for PC and mobile with global titles, but are branching out into online MOOCs in China. Additionally, partnerships with global companies means Netease operates well known titles such as World of Warcraft to China.
NAVER CORP: A Korean digital communication company - known for subsidiaries such as Naver (a search engine, think of it as a Korean Yahoo), LINE messaging app (hugely popular in Asia). subsidiaries also include an online digital comics platform.
SK HYNIX INC: A South Korean memory semiconductor supplier.
WIPRO LTD: An Indian multinational tech consulting business. Provides professional services. A recent announcement was it was named 2021 Microsoft Partner of the Year Award in the Modernizing Applications. Note this entity has multiple listings but for this ETF, it seems to be the the NYSE one.
HON HAI PRECISION INDUSTRY CO: Better known as Foxconn. Manufactures electronic products. Ever bought an Nintendo Switch or a iPhone? Chances are it came from Foxconn.
MEDIATEK INC: Semiconductor company that supplies parts for electronics.
BAIDU INC: Another variable interest entity. This is a Chinese search engine company, probably the largest and widely used in China, with revenue from keyword advertising. Google does not operate in China.
KAKAO CORP: A Korean messaging app, that operates Kakao Talk. Also operates Daum which is a search engine and produces webtoons.
KUAISHOU TECHNOLOGY: A Chinese video sharing mobile - kind of like a TikTok. Makes money through live-streaming, virtual gifts, advertising and ecommerce.
UNITED MICROELECTRONICS CORP: A semiconductor company.
LUFAX HOLDING LTD: A Chinese fintech. I believe this is also a variable interest entity company. Does online lending. There is a large holding by Ping An Insurance Group (a Chinese insurance company) to the tune of approximately 40%.
BILIBILI INC: A Chinese Youtube, that also have license agreements to bring overseas media (such as anime) into the Chinese market.
KE HOLDINGS INC: Owns Lianjia, which is an online real estate brokerage site (think of it as a Chinese realestate.com.au).
ASE TECHNOLOGY HOLDING CO LTD: In the semiconductor industry, and provides semiconductor assembling and test manufacturing.
SILERGY CORP: Another company in the semiconductor industry. Does R&D, and manufacturing of power management chips.
NOVATEK MICROELECTRONICS CORP: Electronics supplier that manufactures integrated circuits.
GDS HOLDINGS LTD: Data centres in China. Recent announcements seem to indicate they are expanding into South East Asia, starting with Malaysia.
SK INC: A Korean conglomerate company - subsidiaries include mobile telecommunication network, energy chemicals, materials, electricity and gas supply, pharmaceutical.
REALTEK SEMICONDUCTOR CORP: Semiconductor manufacturing company
XINYI SOLAR HOLDINGS LTD: A Chinese investment holding company for solar glass manufacturing.
VIPSHOP HOLDINGS LTD: A Chinese eCommerce company that is another variable interest entity. Used as an online discount retailer where excess stock for brands are sold at discounted prices..
KINGDEE INTERNATIONAL SOFTWARE: A Chinese SaaS and PaaS. Owns Kingdee Cloud (HR, financial accounting) and a a cloud ERP platform. C
TUYA INC: A PaaS and SaaS company, which customers use to develop IoT products.
FUTU HOLDINGS LTD: Another holding company for a Chinese entity - a fintech. A digital brokerage and wealth management platform.
ALIBABA HEALTH INFORMATION TECHNOLOGY: Chinese medtech, specifically epharmacy. This ETF has the HK listed version however - judging from historical news there seems to have been an issue when the Chinese government suspended its online drug monitoring platform.
WEIBO CORP: Chinese Twitter. Also another variable interest entity.
TENCENT MUSIC ENTERTAINMENT GROUP: Chinese Spotify ie online streaming. Has also been a victim of the Chinese government’s regulation crackdown on excessive power when it was ordered to give up exclusive rights to music labels in July this year.
KINGSOFT CLOUD HOLDINGS LTD: SaaS that provides cloud storage and cloud computation services.
GLOBALWAFERS CO LTD: In the semiconductor industry specialising in silicon wafer manufacturing and also provides solar wafers and crystal rods.
ACCTON TECHNOLOGY CORP: Electronics manufacturer networking and communication products. It’s website lists areas of expertise as cloud data centres, carrier accesss, campus networks, IoT integration, and SD-WAN.
SAMSUNG SDS CO LTD: Provides security monitoring services (such as hacking analysis and detection) but also most recently has launched a Blockchain as a Service (BaaS) offering.
DADA NEXUS LTD: Provides a platform for local on-demand retail and delivery in China. It operates JD-Diaojia and Dada Now which are a local on-demand retail platform on-demand delivery platform respectively.
AUTOHOME INC: Owns and operates online car marketplaces. One is for second hand cars, and the another is for automakers and dealers.
KINGSOFT CORP LTD: A Chinese Software company - dubbed “China’s Microsoft” according to a news article I read, and its flagship product is WPS Office (Word document, spreadsheet and presentation software). KINGSOFT CLOUD HOLDINGS LTD is a spinoff. Also counts Cheetah Mobile, a mobile app developer in its subsidiaries.
LITE-ON TECHNOLOGY CORP: Manufactures consumer electronics, including LEDs, semiconductors, computer chassis, monitors, motherboards, optical disc drives, and other electronic components.
WIN SEMICONDUCTORS CORP: Semiconducter manufacturing. According to Wikipedia - “provision of gallium arsenide wafers original equipment manufacturer (OEM) services” for those who are familiar with the semiconductor industry (that is NOT me haha).
ASM PACIFIC TECHNOLOGY LTD: Manufactures semiconductor equipment, based in Singapore.
IQIYI INC: Think Chinese Netflix. Has a licensing deal with Netflix where some Netflix original productions are launched on Qiyi.
MICRO-STAR INTERNATIONAL CO LTD: The company behind msi (computer hardware).
JOYY INC: A video-based social media platform - another Chinese Youtube. Owns Bigo Live, HAGO, Like.
GAOTU TECHEDU INC: A Chinese online tutoring company. Recent Chinese government crackdowns in the private education sector would most likely spooked investors in this stock. This is also a variable interest entity.
Edit: formatting