- Investment Strategist
Australia & NZ, Institutional
Change
In Part 1 of the “Rapid fire questions” on Asia tech, Alistair MacDonald, Investment Strategist, explains why AI-driven pricing power is outweighing geopolitical noise for Asia tech, how Asia’s AI supply chain dominance is translating into earnings leverage, and why the region offers a differentiated, attractively valued complement to US mega-cap tech exposure.
Q: How have geopolitical shocks affected Asia tech equities?
Asia is uniquely exposed to the conflict in Iran. 80% to 90% of oil and LNG exports through the Straits of Hormuz are destined for Asia. And so this can be expected to have broader economic impacts including inflation.
But what is far more important for Asia is the fact that memory prices over Q1 of this year have doubled and are forecast to rise by another 40% to 70% over Q2. That kind of AI-demand-driven inflation is incredibly good news for Asian tech equities and has nothing to do with Iran. And to be clear, this is not limited to memory prices. You're seeing excess demand driving price increases across the entire AI supply chain, disproportionately benefiting Asian companies.
And so, in summary, we see geopolitical concerns really is being largely a distraction from the AI demand driven growth benefiting Asia tech.
Q: Why should investors be excited about Asia tech equities?
We're in Year Four of the AI boom, and this is built upon far stronger fundamentals as evidenced by usage, pricing and earnings. Now when you see the large language model providers or the hyperscalers, they all agree that demand exceeds supply and are rationing compute accordingly.
This backdrop is cascading across the entire AI supply chain to the benefit of the Asian companies providing the computing power. This is best characterized by the semiconductor industry, where Asia has overwhelming dominance. Within high bandwidth memory, Asia market share is over 75%. In testing and assembly, it's over 80%. For foundry, it's 90%. And at the most advanced levels of tech, it's 100%.
And so this monopolistic backdrop translates into pricing power. And accordingly, the profit margins of Asian leading tech companies often exceeds that of many of the large mega caps in the United States. And this is not limited just to the larger leaders, but also applies to many of the smaller and mid-sized companies in the ecosystem here as well.
All roads in AI lead to Asia.
Q: Where do Asia tech equities sit in a portfolio?
Many investors lack exposure to the Asian technology companies that are underpinning the tech megatrends that we see globally, ranging from AI to automation to digitalization. Investors are disproportionately and overwhelmingly invested in the United States, concentrated in a handful of large-cap, mega-cap names, missing many of the opportunities in Asia. And if they are allocated to Asia, very often that's only in a handful of the larger Asian tech leaders.
The numbers speak for themselves. The returns in Asian tech last year were more than double that of the Nasdaq. Looking forward, earnings growth in 2026 is forecast to be substantially higher for Asian technology companies versus global tech. In addition, valuations are still cheaper within Asia.
Accordingly, you add that together, that is very additive to your overall tech portfolio allocation.
The views expressed are those of the speaker at the time of filming. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional, institutional, or accredited investors only.
