Sean Taylor, Deutsche Asset Management
“We think that technology stocks generally will still perform in both global and Asian markets, and they are really driven by earnings,” he said during a recent media briefing.
However, he is selective on the sector, particularly in Asia-Pacific. For example, Taylor likes internet stocks but is cautious on “Apple-chain” stocks.
“Examples of internet stocks are the Tencents and Alibabas, and we think they will continue to deliver on earnings growth.”
For Apple-chain stocks, he said that these companies have become more reliant on the next Apple launch. “Given their high valuations, we’re taking money off the table there. But we will look at them again in a couple of quarters when there are new Apple products coming out.”
From Fangs to Bats
For reference, Fangs are Facebook, Amazon, Netflix and Google and Bats are Baidu, Alibaba and Tencent.
Taylor said he also likes Asian internet companies because of lower valuations relative to US technology stocks.
“We’ve had a lot of crossover money basically from the Fangs, mainly Facebook, Amazon and Google, to Asian stocks because US equities have been expensive.”
But he expects Asia technology stocks to be a little more volatile next year, especially since they have gone up a lot. These stocks helped drive the MSCI China Index, which is up 50% this year, he explained.
“There is obviously going to be profit-taking,” he said.
Alibaba and Tencent are widely held stocks in Asia-Pacific strategies. For example, 40 out of the 146 SFC-authorised Asia- and Asia-Pacific-focused funds have more than 3% of their assets in Alibaba, while 29 funds have more than 3% in Tencent.
For Deutsche AM, one of its Asia-focused strategies, the Deutsche Asia Premier Trust, has three of its top holdings invested in technology companies: Samsung Electronics (8.93%), Alibaba (7.49%) and Tencent (5.91%), according to the fund’s factsheet.
Like Taylor, Value Partners is also positive with tech stocks. “Although Chinese e-commerce and internet firms record slower growth in their core businesses, the exponential growth from none-core business largely offsets the impact,” Frank Tsui, fund manager for the Value Partners Classic Fund, told FSA previously.
However, other managers have less positive views of the sector. Joshua Crabb, head of Asian equities at Old Mutual Global Investors (OMGI), believes that while technology stocks remain attractive, investors should stay away from overcrowded trades.
“The market globally, and in particularly in Asia, has gotten very narrow around a couple of very large internet-based companies,” he said recently. These large cap companies, such as Tencent, are widely-held and have become very expensive.
“We don’t see a collapse in these stocks, but we just don’t see an upside,” Crabb said.
Blackrock’s Andrew Swan, head of Asian and global emerging market equities, is also cautious on the IT sector in Asia, in particular some e-commerce platforms in China and large-cap technology companies in Taiwan. He believes that there is a mismatch in the sector’s expanding P/E ratio and earnings growth.
Information technology in emerging markets has consistently outperformed the broader emerging markets, according to FE data.
Over a three-year-period, the MSCI Emerging Markets Information Technology Index returned 77.22%, while the MSCI Emerging Markets returned 31.18%.
The three-year performance of the Deutsche Asia Premier fund versus its benchmark.
Source: FE Analytics, Note: All NAVs have been converted to US dollars for comparison purposes
