Asian semiconductors are an industry to watch

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For example, South Korea is home to the world's leading memory chip maker. It also has a sizable foundry business.

Japan has advantages in semiconductor raw materials and equipment, and its strength in automotive chip manufacturing cannot be ignored.

Taiwan is a world leader in semiconductor manufacturing and dominates the foundry market with more than 50% of the global market share.

At the same time, with the policy support of the Chinese government, the rise of China's semiconductor industry is just around the corner.

It is undeniable that Asia plays a vital role in the global semiconductor industry chain.

Looking back at last year's performance, the FactSet Asia Semiconductor Index, representing the Asian semiconductor sector, significantly outperformed the MSCI Asia Index by 24.9 percentage points.

As earnings growth for Asian semiconductor companies remains strong this year, we expect the sector to remain strong and outperform the broader Asian stock market. Therefore, investing in ETFs is a good way to gain exposure to the sector.

In this article, we will discuss the only Asian semiconductor-related ETF on the Hong Kong Stock Exchange, the Global X Asia Semiconductor ETF (3119.HK).

The chart shows the top 10 holdings and geographic distribution.

Global X Asia Semiconductor ETF focuses on Asian semiconductors

Currently, Global X Asia Semiconductor ETF is the only ETF listed on the Hong Kong Stock Exchange that focuses on the Asian semiconductor industry.

Launched by Mirae Asset Global Investment Group on July 23, 2021, the Global X Asia Semiconductor ETF primarily tracks the FactSet Asia Semiconductor Index using a full replication strategy.

The index was launched on June 29, 2021, with a base date of March 24, 2017. It aims to track companies in the Asia region that derive the majority of their revenue (more than 50% of revenue) from semiconductor-related industries, demonstrating "market leadership".

As for the definition of "market leading," index provider FactSet uses its RBICS Focus System for stock selection. In addition, these companies should have revenue of $10 billion or more in the most recent fiscal year, or be ranked in the top five globally in their semiconductor industry by dollar revenue.

Currently, the index holds 39 stocks, but the top 10 together account for 68.2%, and the investment is relatively concentrated.

The top 10 holdings again show the hallmarks of the index: an overview of market-leading semiconductor companies in the major Asian regions (China, Japan, South Korea and Taiwan).

Japan has four iconic companies, including Sony, a leader in image sensor technology, Tokyo Electron, one of the world's top three semiconductor equipment manufacturers, and Shin-Etse and HOYA, global leaders in upstream semiconductor materials.

The three companies are from Taiwan: TSMC, which has the largest market share in the foundry business, UMC, which is second only to TSMC in the local foundry business, and MediaTek, which is one of the two major suppliers of smartphone SoC (system on chip).

There are two well-known Korean companies that investors are familiar with: Samsung and SK Hynix, which account for 74% of the global DRAM market share and a considerable NAND market share.

There is also a Chinese company, Longi, which is a leading global manufacturer of photovoltaic products.

In terms of geographical distribution, Japan accounts for the largest share in the index (30.28%), followed by China (26.14%), Taiwan (25.20%) and South Korea (18.36%), which is relatively balanced.

It's not hard to understand why the Japanese portions are the largest.

Japan's advantages in the semiconductor field lie in the mature development of raw materials, equipment and integrated device manufacturers.

Although China's global market share is still low at present, it may catch up soon with the strong support of national policies. It will see strong potential growth.

The chart shows the performance comparison.

Index Performance

Since this ETF is new, we cannot analyze its track record in detail. However, based on the long-term cumulative returns of the index it tracks, the FactSet Asia Semiconductor Index, its performance is exponential.

As shown in Figure 2, as of December 31, 2021, the cumulative return since March 24, 2017 is 170.5%, outperforming the MSCI AC Asia Technology Index (138.4%) and the MSCI Asia Index (32.6%).

The outbreak of Covid-19 has accelerated the global digital transformation. At the same time, the semiconductor industry, perhaps the most critical industry in technological development, has seen structural growth in the past two years.

As a result, the index recorded index growth in 2020 (48.03%) and 2021 (21.26%), significantly outperforming the MSCI Asia Index’s 17.88% and negative 3.67% in the same periods.

The table shows the calendar year performance of the index.

in conclusion

Currently, the Global X Asia Semiconductor ETF has an ongoing fee of 0.68% per year. As of January 27, 2021, its total net asset value has reached HK$124 million since its launch on July 23, making it quite popular among investors.

However, the top 10 holdings of the ETF account for a large proportion of the ETF, and the concentration risk is high. In addition, its average daily trading volume is relatively small.

Despite the above unfavorable factors, investors who are optimistic about the prospects of the Asian semiconductor industry and are interested in investing in ETFs would be well advised to invest in the Global X Asia Semiconductor ETF that tracks the FactSet Asia Semiconductor Index.