How China Is About To Surpass the US As World's Best Performing Tech Stocks

In the chart at left, the US is yellow, China is green and Europe is purple.

With China having announced plans to spend $1.5 trillion on tech in the next few years, the US industry is feeling the pressure. But, the big US tech companies have been global whipping boys. Since China's approach is even more authoritarian, those companies may soon face similar pushback from other regions. JL 

David Canellis reports in The Next Web:

China’s tech sector is close to surpassing the US to become the world’s best-performing technology industry in 2020.Top (US) stocks: Apple, Microsoft, Amazon together make up more than 30%, in proportion to their market cap and relative to the rest of the index. The top (Chinese) stocks are Tencent, Meituan Dianping, and Baidu. US tech was up 14% for the year as of Monday’s market close. China’s equivalent returned 13%.

China’s tech sector is close to surpassing the US to become the world’s best-performing technology industry in 2020.

Indeed, China’s tech sector is catching up. Until now, the US comfortably led the world in recovering from (and thriving in) the coronavirus pandemic.

US tech, represented by QQQ on the chart above (more on that later), was up 14% for the year as of Monday’s market close. China’s equivalent fund, CQQQ, had returned 13% in 2020 — just one percent difference.

Data from NASDAQ, Financial Times. Chart made with Flourish.

As for the rest of the world: Europe’s tech sector has faired relatively well, up 5%. Tech companies hailing from emerging markets have had the toughest time, down 17% overall but still recovering (slowly).

ETFs and indexes: how to benchmark (and invest in) the tech industry

Buying stock in Exchange Traded Funds (ETFs) is a handy way of investing in a particular industry. Some ETFs are actively managed, meaning that actual humans buy and sell the underlying portfolio. Others use algorithms to track an index identically.

Take Invesco QQQ: it’s the world’s biggest ETF with more than $116 billion in assets under management. QQQ scales its investments to the NASDAQ 100 (NDX), a tech-heavy index that allocates weight according to a company’s market value.

QQQ’s top stocks mirror the NDX’s: Apple, Microsoft, Amazon together make up more than 30% of QQQ’s investments, which are in proportion to their market cap and relative to the rest of the index.

So, just as the rise and fall of the NDX details the health of US tech at large, so does the market performance of Invesco’s QQQ.

Here are the top stocks in China, Europe, and beyond

Hard Fork used Invesco’s China Technology ETF (CQQQ) to represent China’s booming tech sector. Similarly to the US alternative, CQQQ maps its portfolio to the FTSE China Incl A 25% Technology Capped Index, which consists of top (publicly investable) China-based tech firms.

CQQQ’s top stocks are Tencent, Meituan Dianping, and Baidu. Like QQQ, its portfolio is top heavy due to the size of its biggest tech companies, which make up more than 25% of the fund’s portfolio.

Tencent, like Amazon and Microsoft, has set price records this year

Over in Europe, iShares’ EXV3 tracks the STOXX Europe 600 Technology index (SX8P), a benchmark for the wider European tech sector. Due to a relatively small industry, EXV3 is even more top heavy than its American and Chinese counterparts.

Semiconductor magnates ASML, enterprise software mainstay SAP, and internet giant Prosus account for a knuckle-munching 48% of its total portfolio.

As for the rest of the world, iShares’ EXMC tracks MSCI’s capitalization-weighted index of emerging markets (excluding China). EXMC invests in top tech companies from more than 20 countries including India, Malaysia, the Philippines, Russia, and the United Arab Emirates.

EXMC allows itself the ability to designate a portion of its assets to certain other investments. As such, EXMC’s top holdings are an ETF that deals specifically in top Indian companies regardless of industry (13.45%), Taiwan Semiconductor Manufacturing Co (7.52%), and South Korea’s Samsung (5.95%).

But while China and the US duke it out for number one, the world’s emerging tech sectors are likely focused on simply breaking even for the year. At least they’re headed in the right direction.