Technological innovation and advancement is one of the key themes driving Asian equities this year and beyond.
Felix Lam, senior portfolio manager for Asia Pacific equities at BNP Paribas Asset Management, said he sees strong revenue and earnings growth opportunities in this sector, particularly in the internet, hardware and semiconductor space.
‘In the portfolio positioning of our Asia ex-Japan high conviction strategy, we overweight the information technology sector,’ he told Citywire Asia.
BNP Paribas AM favours mostly the Chinese Internet or technology companies, as well as the Indian IT services companies and Taiwan’s industrial automation companies.
Lam said high-tech industries are now the new growth engine of China’s economy, and private sector is driving the shift from low-end products to electronics, the internet ecosystem, automation and green energy.
In Taiwan, BNP Paribas AM overweights the semiconductor sector, favouring companies that could capitalize on the rise of artificial intelligence and autonomous driving to drive the next leg of growth.
Additionally, the asset manager prefers those with good capital management and track record to return cash to shareholders.
Lam said a rapidly growing middle class has fueled technological adoption and information consumption.
James Thom, senior investment manager for Asian Equities at Aberdeen Standard Investments, concurred that the broadening of digital technology towards artificial intelligence, cloud computing and the Internet, as well as the auto industry’s electrification push, are blurring industry boundaries and creating new opportunities.
A new generation of younger consumers, who are increasingly affluent and digitally sophisticated, are not only fuelling consumption growth but also transforming traditional consumption patterns.
These tech trends are driving demand for semiconductor chips and parts increasingly used in modern products.
‘We have been raising our weighting to companies in this sector, where matching growth expectations against valuations is crucial,’ Thom told Citywire Asia.
Thom said the region’s technology and hardware-manufacturing firms have solid fundamentals and their near-term outlook is bright.
Meanwhile, the fall in smartphone inventories seems to have bottomed out and they are restocking again, which would benefit Asian manufacturers, he said.
‘We remain long-term investors in component companies such as South Korea’s Samsung Electronics and Taiwan Semiconductor Manufacturing Company,’ Thom said.
Both lead their respective sectors in generating substantial profit margins, supported by growing demand for their advanced memory chips – key in building mobile devices and other electronic products.
Meanwhile, Japan is also expected to boast companies at the forefront of investment in technology.
This includes semiconductor manufacturer Renesas Electronics, given its leadership in miniaturised microcontrollers for automobile electronics, autoparts maker Denso Corporation and Fanuc, the world’s largest robot maker, according to Thom.
‘All three are well placed to capitalise on growth in advanced automation across the world, particularly in China,’ he said.
Aberdeen Standard also invests in Chinese internet heavyweight Tencent, and believes its valuation reflects the company’s high earnings potential.
‘Operationally it is in the key segments of social media and payments – enabling it to monetise its user base. It has an enviable market position and consistently exceeds forecasts,’ Thom said.