Semiconductors, batteries and luxury goods promise returns
The most powerful transistors today come exclusively from two companies in Taiwan and South Korea. Battery and electric car manufacturers in Asia are also benefiting from the sustained turnaround. This development, together with the end of the Covid measures in China, offers investors opportunities.
Processors are now a cornerstone of the global economy. Today, Asia produces 75 to 80% of all chips worldwide. Leading in their production are Taiwan, South Korea, China and Japan. Two companies dominate the market for processors with transistors smaller than 10 nanometres: TSMC from Taiwan, which covers 92% of the market, and Samsung from South Korea with 8%.
The semiconductor market is growing along the entire value chain. Despite the recent macro- and geopolitical changes, which have led to a short-term weakening of demand, the growth of the semiconductor industry remains intact in the long term due to the increasing proportion of silicon in end devices.
The topic of artificial intelligence is currently experiencing its breakthrough. This is leading to a massive expansion of the infrastructure, from which manufacturers of graphics processing units (GPUs) are benefiting the most. NVIDIA from Silicon Valley is one of them. It develops the GPU, which are, however, manufactured by Taiwan Semi. Another promising and unrivalled company is Japan's Advantest, which tests GPUs.
The winners are the providers of sustainable technologies
Elon Musk's master plan assumes that far more than 8 billion people can live sustainably on Earth. This requires a complete transition to renewable energies in the next few years. According to his calculations, the necessary investments over the next ten years amount to 10 trillion USD. This is significantly less than the 14 trillion USD investment in maintaining the status quo. The turnaround is also feasible in terms of the area required (0.2% of the Earth's land surface) and the consumption of raw materials (30% less than in the status quo). Tesla will be able to do without rare earths completely in the future. Compared to production in 2022, in 2030 the expansion of solar and wind plants should be increased by a factor of three, electric cars by a factor of eleven and batteries by a factor of 29. This requires a complete transition to heat pumps.
Next to Tesla, the Chinese car manufacturer BYD is best positioned. In the battery sector, China's CATL, the global market leader with a 35% share, is benefiting from the turnaround. The company's Oilin technology allows ranges of up to 1000 km per battery charge. Semiconductor companies such as Infineon or ST Micro are also among the winners of the shift to more sustainability. Daikin Industries is an interesting company that faces a bright future due to the boom in heat pumps.
China: Savings flow into luxury goods and travel
For the first time in three years, the Chinese population has the opportunity to travel abroad again. During the pandemic, the savings rate in the country has risen significantly and we expect that a large pent-up demand for travel and spending on luxury goods has built up. Chinese tourists are likely to flock to Zurich, Lucerne or Geneva again soon. The record of Chinese travel activity from 2019 could be significantly surpassed in 2024. The Chinese travel providers Trip.com and Meituan are likely to benefit from the return of travel activity.
In the wake of this development, the share of the Chinese in global spending on luxury goods is also likely to rise. While this was 31% in 2019, it reached a low of 19% in 2022. Considering that prices in Europe for handbags and watches are around 30% lower than in China and tourists are coming back, it is possible that the share of spending on luxury goods will rise to 35% or higher next year. Luxury brands like LVMH, Hermes, Richemont and Swatch will be at the forefront of this.
The fact is: Innovation and the return of globalisation are driving growth not only in Asia but also globally in the coming years. The signs are good for investors to invest in Asian companies. The prerequisite for returns, however, is local know-how, which is indispensable for the selection and examination of stocks.
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