Asian semiconductor is a sector you should watch out for
12 Feb 2022
Since the valuation of the US tech sector fell and the Chinese technology stocks were hit by regulatory and other policy factors, the Asian technology sector has become increasingly attractive.
It is expected that this sector would be led by the new economy and semiconductor stocks. Asian semiconductor is a sector you should watch out for.
This sector covers semiconductor companies in various regions, including South Korea, Japan, Taiwan, China and so on. Companies from these regions have their own competitive advantages in the industrial chain.
For instance, South Korea is home to the world’s leading memory chip manufacturers. Also, it has a considerable-scale foundry business.
Japan has advantages in semiconductors in terms of raw materials and equipment, while its strength in automotive chip manufacturing should not be ignored as well.
Taiwan is a world leader in semiconductor manufacturing, and it dominates the foundry market at over 50 per cent of the global market share.
At the same time, the rise of China’s semiconductor industry is just around the corner with the policy support from the Chinese government.
It is undeniable that Asia plays a pivotal role in the global semiconductor industrial chain.
Looking back at last year’s performance, FactSet Asia Semiconductor Index, which represents the Asian Semiconductor Sector, significantly outperformed the MSCI Asian Index by 24.9 percentage points.
As the earnings growth of Asian semiconductor companies remains strong this year, we expect this sector to remain strong and beat the overall Asian equity market. As such, investing in ETF is a good way to tap into this sector.
In this article, we will talk about Global X Asia Semiconductor ETF (3119.HK), the only ETF related to Asian Semiconductor on HKEX.
Chart shows the top 10 holdings and geographic breakdown.
Global X Asia Semiconductor ETF focusing on Asian semiconductors
Currently, Global X Asia Semiconductor ETF is the only ETF focusing on the Asian Semiconductor industry listed on HKEX.
Issued by Mirae Asset Global Investment Group on 23 July 2021, Global X Asia Semiconductor ETF primarily uses a full replication strategy to track FactSet Asia Semiconductor Index.
This index was launched on June 29, 2021 with a base date set on 24 March 2017. It is designed to track the performance of companies in Asian regions that derive the majority of their revenues (revenue exposure with more than 50 per cent) from a semiconductor-related industry and demonstrate “Market Leadership”.
As to the definition of “Market Leadership”, the index provider, FactSet, makes use of its RBICS Focus System for stock selection. Besides, these companies should generate USD 10 billion or more revenue in the latest fiscal year or rank among the global top five in a segmented semiconductor sector in terms of USD revenue.
Currently, this index holds 39 stocks, but the top 10 holdings take up 68.2 per cent in total, which means it has a relatively concentrated investment.
The top 10 holdings shows the feature of this index again: an overview of market-leading semiconductor companies from key Asian regions (China, Japan, South Korea and Taiwan).
There are four iconic companies from Japan, which includes: Sony – a leader in image sensor technology, Tokyo Electron – one of the top three semiconductor equipment makers globally, as well as Shin-Etse and HOYA – global leaders in upstream semiconductor materials.
Three companies come from Taiwan, which are: TSMC–the largest market share in the foundry business, United Microelectronics – the local status of foundry business only second to TSMC, and MediaTeck – one of the two major suppliers in smartphone SoC (system on chip).
South Korea has two well-known companies in the top holdings and they are familiar to the investors, which are: Samsung and SK Hynix – they take up 74 per cent of the DRAM market shares in the world, also with a sizable NAND market share.
There is also a Chinese company LONGi, which is the world’s leading photovoltaic product manufacturer.
As for the geographic breakdown, Japan occupies the largest portion of the index (30.28 per cent), followed by China (26.14 per cent), Taiwan (25.20 per cent) and South Korea (18.36 per cent), which is quite balanced.
It is not hard to understand why the portion of Japan is the largest.
Japan’s strengths in semiconductors are in raw material, equipment and integrated device manufacturer with matured development.
Although China’s global market share remains relatively low at the moment, it may catch up soon with strong national policy support. It will see strong potential growth.
Chart shows performance comparison.
Index performance
As this ETF is newly established, we cannot analyse its track record in detail. However, based on the long-term accumulative returns of its tracking index, the FactSet Asia Semiconductor Index, the performance is exponential.
From Chart 2, as at December 31, 2021, the accumulative return rate stood at 170.5 per cent since March 24, 2017, outperforming MSCI AC Asian Technology Index (138.4 per cent) and MSCI Asia Index (32.6 per cent).
Global digital transformation has been accelerated by the breakout of Covid-19. Meanwhile, the semiconductor industry is probably the most crucial sector in technology development, which has a structural growth in the past two years.
Thus, this index records an exponential growth in 2020 (48.03 per cent) and 2021 (21.26 per cent), significantly outcompeting MSCI Asia Index’s 17.88 per cent and minus 3.67 per cent at the same period.
Table shows calendar year performance of indexes.
Conclusion
Currently, Global X Asia Semiconductor ETF’s ongoing charges over a year are 0.68 per cent. As at January 27, 2021, its total net asset value has reached HK$124 million over half a year since the launch date on 23 July, which is quite favoured by investors.
However, the ETF’s top 10 holdings take up a large proportion of the ETF, which means that it has high concentration risks. Also, its average daily trading volume is relatively small.
Despite the abovementioned disadvantages, investors who are optimistic about the future of the Asian semiconductor industry and intend to invest in ETF, investing in Global X Asia Semiconductor ETF, which tracks the FactSet Asia Semiconductor Index, would be a great choice.
Source: The Borneo Post
