According to one expert from BetaShares, Betashares Asia Technology Tigers ETF (ASX: ASIA) could be an opportunity after a pullback due to Chinese regulation concerns.
What's going on?
Over the last six months, Betashares Asia Technology Tigers ETF has dropped by over 22% and in just the last month it has fallen around 7%. That's despite the global share market continuing to rise, particularly the technology sector.
Betashares Asia Technology Tigers ETF is an exchange-traded fund (ETF) that follows a number of non-Japanese technology businesses. Half of the portfolio is invested in Chinese-listed business.
BetaShares Chief Economist, David Bassanese, pointed out that the decline started several months ago when there was a shift from 'growth' shares to 'value' shares.
Mr Bassanese pointed out that the decline of the Asian tech share prices has not been due to a fall in earnings. Indeed, those earnings have increased "strongly".
It is China's regulatory crackdown that he attributes a large part of the fall to.
A number of Chinese businesses have faced new rules and attention in China, starting with Alibaba.
The focus of China on these tech names has been "anti-competitive practices in areas where companies have significant market power."
Is Betashares Asia Technology Tigers ETF a buying opportunity?
Mr Bassanese noted that long-term growth is likely in the Chinese economy (and globally) for consumer goods and semiconductors.
The private sector is "critical" to China's economic success.
He pointed to the high levels of technology adoption and the large and growing Asian middle class as reasons to be positive on businesses within the ETF's portfolio.
There is also the fact that a number of Chinese businesses have multiple divisions making profit, so a decline in one area can be made up in other areas of the company.
Mr Bassanese argues that China likely doesn't want to kill its golden geese. Any measures taken could help some of the smaller Chinese tech businesses grow – which the Betashares Asia Technology Tigers ETF may already own in its portfolio further down in the exposure list.
However, the BetaShares economist cautioned that short-term volatility and risks are part of investing.
Bottom line
In his concluding thoughts about Betashares Asia Technology Tigers ETF, Mr Bassanese said:
All up, it seems likely that the price impact of the latest round of regulatory risk now being absorbed by the Asian technology sector will eventually fade. As such, the current period of price weakness may well represent a buying opportunity for long-term investors who still see potential in this growth thematic.
The Asian technology sector generally trades at a price-to-forward earnings discount to the global (largely U.S. dominated) technology sector. Since 2003, that discount has averaged around 15%, whereas by late-July it had increased to 30%.
