When it comes to the latest and greatest tech companies, yes, the United States is still a great place to invest. But that’s definitely not the only square. In fact, some of today’s most essential technologies and platforms come not from Silicon Valley, but from abroad, especially East Asia.
Technology-driven growth is taking place at a rapid pace in the region, from China and Taiwan to South Korea and other Southeast Asian countries. So for those looking to boost your portfolio returns for the 2020s, adding exposure to these top three Asian tech stocks could be a very smart move.
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Naspers/Prosus
South African media company Nasper (NPSNY -0.86%) made perhaps the biggest venture capital investment of all time in 2001, when it bought a massive 33% stake in a Chinese tech start-up Tencent (TCEHY -1.02%) for just $32 million. Fast forward 20 years, and this stake, if held in full, would be worth $258 billion, plus dividends. Naspers sold around $10 billion in 2018, and it just sold another $14.6 billion earlier this month. Yet even after these sales, the international holding company of Naspers, Prosus (BORING -1.32%)still owns 28.9% of the Chinese giant.
However, that success has posed a problem, as Naspers’ size has become so overwhelming on the Johannesburg Stock Exchange that it began trading well below the value of its skyrocketing stake in Tencent a few years ago. In 2019, Naspers spun off Tencent and all of its other international holdings to Prosus, which is listed on the Euronext exchange, with Naspers retaining a roughly 73% stake in Prosus.
Unfortunately, that didn’t close the discount, as Prosus continues to trade well below the value of Tencent’s stake, and Naspers is trading at a discount to the value of its Prosus stake.
However, Naspers/Prosus is valiantly and cleverly trying to change that. Prosus just sold $14.6 billion worth of Tencent shares after Tencent surged during the pandemic. Although Prosus is still bullish on Tencent and has pledged not to sell any more shares for another three years, the sale could help reduce the discount.
Prosus can increase its $5 billion share buyback program announced last fall, which would instantly add value, or it can also use the money to grow its non-Tencent business in online classifieds, food delivery, social media and e-commerce. Analysts estimate the corporate collection was still worth $30 billion last September, and likely even more now. It is likely that Prosus will do a little of both – expanding its other businesses while buying back shares at a very favorable price – over the next three years.
Investors reacted positively to the news, but Naspers and Prosus are still trading at significant discounts to the fair value of their publicly traded assets. Management has a vested interest in closing this discount, and if history is any guide, Prosus management should allocate these new billions wisely. In any case, an investment in Naspers or Prosus is a chance to invest in Tencent at a steep discount, while avoiding direct investment in China, which has become riskier due to a deterioration in US-China relations.
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Semiconductor manufacturing in Taiwan
Perhaps the most important company in the world today is Semiconductor manufacturing in Taiwan (TSM 0.49%). As the world’s largest and most advanced semiconductor foundry, many of the world’s leading technology companies depend on TSM’s manufacturing expertise to produce their cutting-edge chips. Semiconductors are becoming more complex and more difficult to produce, and Taiwan Semi has technologically overtaken its rivals in recent years, driving massive growth.
Still, Taiwan Semi’s stock has recently pulled back, down about 17% from recent all-time highs. Why is that? A few reasons. First, Taiwan Semi has risen a lot over the past year – around 144%, while its P/E multiple has risen from around 20 to 35 even as earnings have risen.
Secondly, a lot of attention has been paid to its competitors in recent months, especially Samsung and Intel (INTC -0.52%), each of which has announced ambitious investment plans in the foundry in an effort to catch up with TSMC. Samsung recently announced a $116 billion spending plan to achieve 3-nanometer chip production by 2022, matching Taiwan Semi at that time, and adopting gate-all-around technology before Taiwan Semi don’t do it too.
Meanwhile, Intel, which ceded the edge lead to Taiwan Semi a few years ago, has also announced plans not only to catch up on edge chip production, but also to become a foundry for advanced chips. other chip designers. Meanwhile, new CEO Pat Gelsinger announced that Intel would invest $20 billion in two new factories in Arizona.
Still, I think it’s premature to say that Samsung or Intel will be able to catch up anytime soon. After all, there’s a reason Taiwan Semi took the lead in chip technology in the first place, and it’s not unthinkable that Taiwan Semi will maintain its lead this year. It’s also uncertain whether Samsung and Intel will succeed in their high-stakes bets.
With the global pandemic accelerating digital trends, we are now in a semiconductor shortage that is expected to last until 2022. This rising tide should lift all boats, even if Taiwan Semi is to share a bigger slice of the pie with his rivals. While TSMC projected 10% to 15% annualized growth over the next five years, management on the recent analyst conference call just raised its 2021 forecast to 20% growth, and it has a track record. of under-promise and over-production.
In short, the recent decline may be a good time to add to this long-term dividend growth stock.
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Sea Limited
A potential giant in the making, Sea Limited (SE 2.96%) quickly overtook its competitors to become the leading e-commerce platform in Southeast Asia.
Of course, Sea didn’t start out that way. Initially, it was a communication platform for video gamers, before distributing games made by Tencent for audiences in Southeast Asia. The company then produced its own game in-house, Free firewhich became an international phenomenon from the company’s first try.
But Sea’s ambition went far beyond video games, and the company then launched Shopee, its e-commerce platform, in 2015, along with SeaMoney, its digital financial services arm around the same time. Shopee has been a resounding success, overtaking early e-commerce players in the region just as Southeast Asians began to embrace e-commerce more and more. The pandemic then hit just as Shopee overtook its rivals, driving stratospheric growth last year.
While Sea’s stock has recently fallen more than 10% from its all-time highs, it has risen significantly over the past year, having appreciated 385% in 2020. Still, the company has proven itself with absolutely massive growth. Last quarter, revenue jumped 102%, fueled by 178% growth in e-commerce and 72% growth in its digital entertainment division, which includes Free fire. Revenue from digital payments has grown eightfold, albeit from a very small base.
And the company is not letting up either. In 2021, Sea has already taken steps that signal even greater growth ambitions. First, it continued to invest in its fintech ambitions by acquiring Jakarta-based Bank BKE. The acquisition of a bank signals Sea’s ambition to become a comprehensive super app with many financial services beyond simple e-commerce payments.
Second, Sea has also penetrated Latin America more significantly. After starting with a small e-commerce team in Brazil in 2019, Shopee just launched its app in Mexico in February. The launch signaled that Sea has even greater ambitions in Latin America, where e-commerce is under-penetrated and where it can effectively cross-market with the many Free fire actors in the region. Additionally, Latin America has an even larger population than Southeast Asia, with a GDP of $5.2 trillion in 2019, compared to Southeast Asia’s $3.6 trillion. .
Fundamentally, Sea continues to grow both its product portfolio and geographic reach, while performing well across its core gaming and e-commerce platforms at home. A potential successful expansion into Latin America could certainly boost Sea’s stock, despite the impressive run over the past year.
