A weakening Chinese yuan and Donald Trump setting out to impose tariffs on the remaining US$300 billion worth of Chinese goods he has not yet taxed are the latest movements in the seemingly never-ending US-China trade war.
Exchange-traded funds, or ETFs, are investment funds that are listed on a securities exchange.
Generally, ETFs give investors exposure to many different shares or assets with a single purchase, offering one of the quickest and easiest methods of achieving diversification.
The video below explains ETFs in more detail.
What Is The BetaShares ASIA ETF?
The BetaShares Asia Technology Tigers ETF is a passive ETF that aims to track the performance of the Solactive Asia Ex-Japan Technology & Internet Tigers Index.
This is achieved by providing exposure to the 50 largest technology and online retail companies in Asia, roughly half of which are based in China.
From inception in September 2018 to 31 July 2019, the fund has returned a mere 1.25% after the 0.69% management fee.
This is due to large declines in the share prices of some of the ASIA ETF’s largest holdings, including Alibaba Group Holding Ltd (NYSE: BABA), Tencent Holdings Ltd (HKG: 0700), Baidu Inc (NASDAQ: BIDU) and Samsung Electronics Co Ltd (KRX: 005930).
The Case For Holding
While trade tensions are increasingly weighing on investors’ minds, it should be noted that China’s largest tech companies are somewhat insulated from tariffs. As far as Alibaba, Tencent and Baidu go, most of their revenue is generated domestically from ads, e-commerce and social media.
All of these companies are also based in sectors that are positioned for growth. For example, according to eMarketer, digital ad spending is predicted to grow by 22% in 2019 and will account for more than 75% of paid media outlays in China by 2021.
A report from Forrester estimated that China’s online retail market will reach $1.8 trillion by 2022, more than doubling the US market.
With China’s growing population and an appetite for the latest tech, these industry leaders should continue to see strong demand and growth.
There are certainly concerning factors when it comes to Chinese tech, such as the increased scrutiny from the US, Europe and even the Chinese government itself. However, over the long-term, I don’t think it’s a good idea to ignore the world’s largest market and some of the most innovative companies.
For now, I won’t be selling. For our number one ETF pick, have a look at the free report below.
At the time of publishing, Max owns units in the BetaShares ASIA ETF.