Why savvy investors are swapping US tech for Asian tech index ETFs?
US technology stocks have been a dominant part of Indian investors’ portfolios for more than a decade. Stocks such as Apple, Amazon, and Microsoft have performed exceptionally well, making US-based ETFs a popular choice among Indian investors. However, a subtle change is underway.
Savvy investors are increasingly investing in Asian technology stocks through Asian Tech Index ETFs. In this blog, we will explore the factors driving this shift from US tech ETFs to Asian Tech Index ETFs.
Valuation comfort
The US technology stocks, particularly those included in the Nasdaq-100, have shown a strong performance in the past decade and hence may have become overvalued. There is limited scope for these stocks to move up, given their high price-earnings ratios.
On the contrary, Asian technology stocks, especially Chinese and Hong Kong-listed companies tracked by the Hang Seng ETF, offer relatively attractive valuations.
Furthermore, these stocks have shown corrections and consolidations due to regulatory interventions in these markets, thus offering a compelling opportunity for long-term investors to invest in these stocks at a discount.
Exposure to next-gen technology themes
Asian technology stocks are not simply a replica of US technology stocks; rather, they are industry leaders in their respective domains. The Hang Seng Tech Index includes stocks in segments like e-commerce, fintech, cloud computing, and autonomous technology.
The Mirae Asset Hang Seng Tech ETF includes the top 30 technology companies on the Hong stock exchange with high revenue growth and R&D focus in segments like internet, digital platforms, and fintech.
Diversification beyond the US market
Most Indian investors’ portfolios are largely concentrated in US-based equities by investing in an ETF that tracks the Nasdaq or S&P 500 index. Though these have provided strong returns over the years, investing in a single geographical location increases the concentration risk. Investment in an Asian Tech ETF will provide geographical diversification to these investors’ portfolios.
By investing in an Asian tech ETF, an investor will be investing in Asian companies and hence will not be dependent only on the US market movements, interest rate movements, and currency movements. This will also provide an opportunity for the investor to invest in growing markets around the world other than the US.
Easy access via ETFs
Earlier, investing in the global market involved a complex process for Indian investors. However, in the current digital landscape, Indian investors can easily invest in the global market via domestic ETFs and funds of funds.
Currency and macro advantage
The other reason for this shift is the currency diversification and the macro advantages that investors can enjoy by investing in these markets. Although the US dollar is doing well, in the future, other currencies like those in Asian countries may also gain popularity as the Asian economies stabilise and grow.
The Asian economy is growing rapidly, especially in China and Southeast Asia, with aggressive digital adoption and consumption growth, making these economies a lucrative option for investors to invest in the long term.
Conclusion
Although the shift is seen as shifting away from the US markets and into the Asian markets, it is not exactly that. It is more about rebalancing the portfolio with long-term growth in mind. The Asian companies’ attractive valuation, the exposure to new technologies, and being easily accessible with the help of ETFs, make the Asian markets a lucrative option for investors in the Indian market.
