Tech is flavor of every month, for investors if not for regulators. But has Big Tech's stranglehold on our attention come to an end? The Big Six has seen its share of the S&P 500's market cap fall from a peak of 26.2% on September 1 to 24% now, notes Christopher Wood, the global head of equity strategy at Jefferies.
Today, I'm highlighting five tech stocks to watch in Asia for 2021. This builds on Monday's Top 5 Asian Consumer Stocks for 2021, spotlighting five consumer-related plays that stand to gain in the year ahead as Asia recovers from Covid-19.
It may pay, if risk appetite returns, to diversify tech holdings away from the names everyone already knows. These typically smaller tech companies in Asia are therefore well worth a look.
Douzone Bizon (KS:012510)
This Korean software maker (shares up 28.4% YTD) serves small- to mid-size businesses with enterprise resource planning programs and systems. It also makes software used in electronic banking, billing and tax filing. Its Wehago online business platform has an English-language version that allows companies to outsource business communication, data storage and management, and services such as accounting, human resources, retirement savings and tax withholding.
South Korea, the most wired nation on Earth in terms of broadband penetration, was pioneering the "untact" movement to automation and communication without human contact well before "social distancing" even became a thing. Douzone gets a government subsidy for its Homeoffice All-in-One package, and operates in a sector that the Seoul administration would like to see flourish.
Douzone is a new addition this year to MSCI's Asia ex-Japan index. That's a sign of high growth, with last year's tech-linked additions such as e-commerce site Pinduoduo (PDD) (up 275.5% YTD), delivery app Meituan (HK:3690) (up 175.8%), and mobile-phone maker Xiaomi (HK:1810) (up 172.3%) all boasting strong performance this year.
This Taiwan-listed Chinese chipmaker (up 170.0% YTD) designs semiconductors that manage power loads, used to control batteries when they charge, as well as to run LED light sources. So they're essential in ensuring our devices use their charge efficiently, and of course don't overheat or explode. Silergy is a "fabless" chipmaker, meaning it designs and sells its hardware but outsources the production to a semiconductor foundry. This is an advantage during the Sino-U.S. trade war. So while the main operational base is Hangzhou in China, the management are American or Taiwanese nationals.
Its automotive and 5G product lines show great potential, with China by far the biggest market for 5G current users. Investors will have to watch any trade-war developments. The company also has operations in the United States, South Korea, India and Japan, which as a fabless design shop could give it flexibility over where to source and originate its R&D.
Silergy is another new addition to the to MSCI All Countries Asia ex-Japan Index in 2020, boding well for the year ahead with a beta-buying stock boost.
The Chinese electric-car market is a minefield for investors, with shares having skyrocketed. The stock of Nio (NIO) , for instance, is up almost 1,000% in 2020. Warren Buffett-backed BYD (BYDDF) shares have almost quadrupled in a year.
Xpeng shares currently present a reasonable entry point. The company priced a US$2.2 billion follow-on offering at US$45 per share on Dec. 11, which has temporarily depressed the stock. It's down 21.5% from a peak of US$53.38 on Nov. 23, trading at US$43.50, so slightly below the price of that secondary. Not that its gains are restrained. Its shares shot up 67% on its US$1.5 billion U.S. market debut in August, and are now up 190.0% from the US$15 offer price.
Guangzhou-based Xpeng in April launched a P7 long-range sedan that will look suspiciously familiar to Tesla (TSLA) drivers. The G3, launched in 2018, is a pocket SUV with a subsidized starting price of C¥147,000 (US$20,700), the low end of the company's product range and aimed at China's mid-mass market. The P7 is slightly more upmarket and starts at C¥230,000 (US$32,400).
Taiwan Semiconductor Manufacturing Co. (up 80.9% on NYSE, 54.7% in Taipei) is the world's largest contract chipmaker, the kind of chip foundry that makes semiconductors designed by Silergy (see above). It is a direct beneficiary from the restrictions put on Chinese tech companies by the Trump administration, although the trade war has also crimped its style in terms of selling to Chinese customers.
TSMC-made product will be in high demand for Artificial Intelligence and use in 5G telecommunications. Apple (AAPL) accounts for around 20% of 2020 sales. Intel (INTC) , Nvidia (NVDA) , Broadcom (AVGO) and Qualcomm (QCOM) all also outsource chipmaking to TSMC, so in a way it acts as a tech-world index tracker. The company this year is getting a temporary boost as customers stockpile chips due to the pandemic, transport disruption and geopolitical tensions. But that may mean a correction in 2021 if global trade normalizes.
China is throwing its weight behind mainland rival SMIC (HK:0981). But analysts say it is a decade behind TSMC, and will struggle to catch up if it is barred from using U.S. parts, equipment and systems. The United States has added SMIC to a list of companies linked to the Chinese military, which means U.S. companies have to get special permissions to trade with it. Thanks to an executive order from outgoing U.S. President Donald Trump, it also means U.S. investors will have to divest the stock. TSMC will be the market leader for years to come.
Mercari (T:4385) (MCARY)
When Tokyo went into a state of emergency, its governor roped in Marie Kondo to encourage citizens to declutter. The move has given an unexpected boost to companies like Mercari (up 89.7% YTD).
The company, which runs an online marketplace designed for easy use on smartphones, has seen user numbers boom in Japan. It's the top digital flea market, basically. The pandemic has encouraged older customers to go online, with sales up 52% in the September quarter over the same time last year.
Mercari is still investing heavily to penetrate the United States, where fierce competition has led to slow adoption. The company is the new sponsor of the Texas Bowl, which will take place on New Year's Eve in Houston. The Mercari app launched in the United States in 2014, and has been downloaded by 50 million American users. Heavy marketing costs will cause losses, although they should be narrowing.
The Japanese business, 85% of merchandise sales vs. 15% from the United States, looks poised to start turning an operating profit this fiscal year, Jefferies notes. The brokerage anticipates a ¥6.2 billion (US$57 million) profit for the 12 months running through March. Sales may finish at ¥100.8 billion (US$927 million), up by around one-third in a year. It's a good time to be helping homebound shoppers go online.