Asia Rising: Global Tech Value Chain Dominance to Drive Portfolio Reallocation

Conference call with Sean Maher

Sean Maher gave a very upbeat presentation on Asia’s technology sector predicting that top-line growth will be sustained for years due to advances in 5G, battery technology, transition to EV and mass grid storage using the energy transition to Hydrogen. Given the valuation differential between the US and Asia for tech stocks with deep moats and dominant market positions, there is a significant discount in Asia and large revenue tailwind to the tech hardware supply chain, underscored particularly by the current ‘stay at home’ reinvestment themes. Sean focused in on China’s attempts to offset US pressure by creating a ‘Pan-Asia’ tech ecosystem. The emergence of Chinese domestic software to rival US alternatives using Tencent or Alibaba cloud taking an iterative approach has coalesced with their 5G and AI advantage to presage a Chinese rise that has shocked Silicon Valley and has threatened US geopolitical and military power.
China, Japan, South Korea and Taiwan currently own 15% of the market; however, this market share is set to rise - with increased activism in this space, such as Elliott’s recent moves with Softbank, substantial value can be unlocked given the large cash holdings of these companies. Despite US sanctions attempting to slow the progress of Chinese competitors, China has continued to deepen supply chain relations with neighbouring countries. Furthermore, as has been observed with chip architecture (in China’s focus on RISC-V), China is refocusing on open source software (China has the largest number of GitHub contributors outside the US) to circumvent these sanctions. In the e-commerce sector, China is way ahead of US competition such as Amazon due to early 5G capability; specialist Asian suppliers of logistic automation stand to do very well. Sean talked about the Japanese companies which use solid-state technology batteries for example in moving LIDAR away from roof to the headlights in autonomous cars, moving away from lithium batteries to polymers for energy storage and moving away from fossil fuels to the development of hydrogen based grid infrastructure. As 5G goes mainstream in China due to Huawei, this will enable new start-up models to emerge. Despite Huawei’s global ambitions being curbed, their domestic potential is still huge. Further Chinese advantage over the West can also be seen in AI advancement. Due to the lack of privacy restrictions in China, AI can be deployed on a much larger scale - thus creating new software opportunities. Other areas mentioned include the deep bioscience advancement in North Asia (as highlighted by their response to the pandemic) considerably overtaking the US and Europe, and their continued strong position in gaming. Also, the Green revolution was discussed which a Biden victory would accelerate in the US and again where Asian companies have the strongest technologies.
Asian companies mentioned include: Hyundai, TSMC, Sony, Huawei, Alibaba, Tencent, NetEase, JD.com, Samsung, STI, LG, MediaTek, SMIC, Pentax, Keyence, THK, Daifuku, Inovance, Toyota, BYD, Takeda, WuXi, BGI Genomics, Sony, Nintendo, Nidek, Kyoto.
European and US Companies mentioned include: ASML, Ballard Power, ITM Power, Intel, Nokia, Ericsson, Cisco, Microsoft, SalesForce, Slack, Lam Research, Tesla, Sainsburys, Tesco, Ocado, Linde, Air Liquide, SDI, AstraZeneca, Moderna, Google, Amazon, Epic, Ubisoft, Netflix, Apple, ARM, Velodyne, Alphabet / Waymo, Cruise, Morotta.