Buy These 4 Asian Tech Stocks for Regional Exposure

It’s no secret that US stocks have, on the whole, done exceptionally well over the past 12 years.

Yet the US stock market has continued to outperform versus global peers since a bottom was reached in March 2020.

Overall, we should want exposure to emerging market stocks as well as US stocks. Inevitably, that means looking at Asia.

Outside of Singapore, though, where are the best opportunities in the region? First and foremost, they tend to be in China.

However, I have issues with ETFs that track specific stock indices, especially in China. That’s because you are often forced to buy poor stocks along with the great ones.

Even with active equity funds from the big fund providers, you'll see that a lot of their flagship Asian funds have these four tech stocks as their top four holdings.

That's for a variety of reasons, from liquidity to positiong sizing and, obviously, to the quality of the companies.

Buy the winners

The Motley Fool's David Gardner has a saying that when it comes to stocks, "Winners Win".

That's so true when you think of the four Asian behomeths; Alibaba Group Holding Ltd, Tencent Holdings Ltd, Taiwan Semiconductor Manufacturing Co Ltd - also known as TSMC - and, finally, Samsung Electronics Ltd.

You'll find that a lot of Asian funds' returns over the past decade have been powered by these four.

That's also partly why it's relatively easy for Asian fund managers to outperform benchmarks (compared to the US) as indices in the region are stuffed full of some absolutely horrendous stocks (such as SOE banks, oil giants and materials companies).

Meanwhile, the great thing about all four tech plays is that they're available as single shares via American Depositary Receipts (ADRs), which are listed in the US, or Global Depositary Receipts (GDRs).

Alibaba and TSMC are actually listed on the New York stock exchange under the tickers NYSE: BABA and NYSE: TSM, respectively, while Tencent's ADRs are available in the over-the-counter market in the US as OTC: TCEHY.

Samsung is the odd one out, with its US-dollar GDRs listed in London under LSE: SMSN. Liquidity across all four stocks is plentiful enough so that's not a worry.

Forget emerging market ETFs

When it comes to ETFs in emerging markets, they're even worse. Take the benchmark, the MSCI EM Index.

Over the past decade, its net return (as of 31 March 2021) has been an annualised 3.7%.

That is a far cry from the MSCI World Index’s 9.9% annualised return over the same period.

From an ETF perspective, BlackRock's iShares MSCI Emerging Markets ETF has been even more miserly, returning an annualised 3% over the past decade and a total return of 34.7% over the period.

Compare that to Tencent's total return of nearly 1,600%, or TSMC's 1,260% return, over the past decade and you can see why avoiding being invested in the laggards is so key.

I would say, to end, that I have my doubts on whether Alibaba and Tencent can continue to dominate in the fashion they have done given the recent anti-trust crackdown in China.

However, they are both still fantastic businesses and if you are bullish on the future of both (as well as of Asian tech more broadly) then these four giants would be a good addition to any diversified portfolio.