Asia’s tech renaissance

Next month, China will host the 2025 World Humanoid Robot Sports Games. This will include a humanoid robot marathon, football games, athletics and gymnastics. It is another chance for China to demonstrate its technological prowess at a time when it is moving from copycat to innovator. 

This example of Asian technology skill in action comes at a time when there is plenty of debate over whether the US technology giants can maintain their dominance, and whether they can justify their lofty valuations. Investors are increasingly starting to recognise that these US behemoths depend on the Asian technology sector, which is a crucial part of the supply chain that enables these companies to grow. 

But Asian technology is not just confined to making widgets for the US giants; the arrival of DeepSeek and, to a lesser extent, the humanoid robots, shows that innovation is alive and kicking across the region. Asia is increasingly setting the pace on technology. Yet investors can get access to this innovation at a fraction of the price of their US equivalents. The MSCI AC Asia Pacific Information Technology Index trades at just 16x forward earnings, less than the 18.7x for the MSCI World and a fraction of the 28.5x for the MSCI USA Tech 125 Index*. 

Investors have started to take note, with a strong rotation into Asian markets led by many familiar technology names. James Cook, manager on the Federated Hermes Asia ex Japan Equity fund, says: “Giants like Tencent and Alibaba — listed in Hong Kong and the US, but not onshore — have become key vehicles for this rotation. Alibaba’s September listing upgrade was a pivotal moment,” he adds.

The Asian technology sector has a wealth of factors in its favour. The first is the quality of the companies themselves. There are a number of key areas in which Asia dominates, with semiconductors the most obvious. The South Korean and Taiwanese governments have directed vast sums towards semiconductor research and infrastructure, building an enviable lead in chip manufacturing that other counties are now scrambling to match. Between them, the two countries account for over a third of global semiconductor fabrication, according to Bernstein Research**.

This gives them a pivotal role in the AI revolution. Richard Sennitt, manager on the Schroders Oriental Income Trust, says: “Asian companies are contributing across the value chain – from chip fabrication and packaging to supplying high-end servers that meet AI’s significant power demands.” 

Martin Lau, manager of the FSSA Asia Focus fund, believes Taiwan Semiconductor (TSMC) is one of the best ways to capture the rising trend of AI, smart devices and the Internet of Things: “Established in 1987, TSMC was the pioneer of the foundry model, which separated semiconductor chip designs (produced by fabless companies) from the fabrication or manufacturing process (outsourced to a foundry). TSMC has become the world’s largest dedicated contract chip manufacturer, with more than 50% market share.”

It has built powerful barriers to entry and its strategy of partnering with, instead of competing with, its customers means its customers don’t have to worry about intellectual property transfer, “while TSMC gains exposure to the latest technology trends and doesn’t have to worry about tech obsolescence.” He believes it should continue to gain market share and outpace the overall industry. 

Richard Sennitt also has exposure to Hon Hai Precision Industry, often known as Foxconn. He says it is “a critical component of global supply chains. Known for assembling a significant portion of Apple’s products, including the iPhone, Hon Hai has also expanded into server manufacturing, which is growing rapidly to meet the demand for the high-end servers needed for AI applications.”

However, it’s not all about semiconductors and AI. Asia’s tech leaders are also well-placed to participate in the long-term growth of other important trends such as digitisation, cloud computing and the rollout of 5G mobile networks. The Chinese technology giants are also benefiting from a change of tune from the Government. China’s President Xi shaking hands with Jack Ma was a symbolic moment, showing the government is ready to re-embrace the technology sector, and the growth and innovation it brings with it. 

Global managers are tentatively reinvesting, drawn by the low valuations and strong growth prospects. Zehrid Osmani, manager of the Franklin Global Trust, has just bought into Alibaba and Tencent: “China is showing an ability to continue to innovate in a post Deepseek world and has levers to pull through internal fiscal and monetary policy measures to navigate the increased macroeconomic uncertainty. 

“Alibaba is a business with true scale and share dominance which has been languishingly labelled non-investable and ex-growth. Whilst many of the risks remain, management tone has notably inflected, as has the appetite for China cloud business. In Tencent, we see an opportunity for growth through AI on advertisement revenues, gaming, payments, and engagement of users via optimised content.”

Technology know-how even extends to the region’s smaller markets. Vietnam has become a natural choice for electronics manufacturing, for example, while Thailand has developed expertise in printed circuit boards. Malaysia is home to a number of exciting software design companies. Richard has made investments in sectors such as telecommunications, technology and digital infrastructure, which are pivotal in supporting and benefiting from the growth in digital connectivity***. 

The biggest barriers to further growth come from outside rather than inside, with the US tariffs still looming large for the many investors. James Cook says: “Even the excitement around China’s AI ambitions, briefly reignited by DeepSeek’s GenAI launch in January, has been tempered by a series of geopolitical flashpoints: ‘Liberation’ Day’ tariffs, and uncertainty as the end of the 90-day tariff pause looms,” he adds. However, US companies are arguably just as vulnerable, but this is not reflected in their valuations. 

Asian technology looks every bit as exciting as its Western equivalent. There is a head of steam building in terms of technology innovation and development. It is a popular choice for managers in the region, but also for global managers looking at a better way to play the growth of AI. 

*Source: index factsheet in US dollars, 30 June 2025

**Source: This is Money, 16 April 2025

***Source: Schroders, 14 February 2025