Against a backdrop of tariffs, shifting supply chains and emerging market outperformance, Asia is emerging as a key growth region.
Global X’s DRGN exchange-traded fund (ETF) hit an all-time high on Wednesday, overtaking VanEck’s CETF in assets under management (AUM) after trading for just 100 days.
With $35 million in AUM and a 35.2 per cent return, the ETF is now the best-performing Asian ETF on the ASX over the last 100 days, providing exposure to 20 prominent Chinese technology companies across 15 key sectors, including semiconductors, robotics, software and internet platforms, all listed in Hong Kong and Mainland China.
Given global equity investors are still underweight on Chinese tech shares, the ETF provider’s senior investment strategist, Billy Leung, believes the rally has “only just begun”, with more room for catch-up if conviction in the region builds.
He said his outlook is supported by attractive valuations, with the MSCI China Index trading at a forward price-earnings ratio of 13.9 times as of 25 September.
As Leung explained, the rally has by and large been driven by momentum around artificial intelligence, rather than stimulus hopes.
He noted Alibaba’s jump on Wednesday from 9.2 per cent to around 48 per cent over the month on the back of the mega e-commerce company’s over $50 billion AI spending hike for September, Huawei’s three-year AI chip roadmap, and Nvidia and Alibaba’s newly announced partnership – marking one of the first high-profile collaborations between Chinese and US leaders in the sector.
As the chip war heats up, Annabelle Miller, principal of investments at ECP Asset Management, added that it is possible for China to catch up to the US and Nvidia in terms of graphics processing units (GPU) production. She pointed to China’s recent ban on Nvidia GPUs and the emergence of competitors in Huawei, DeepSeek and Alibaba.
“While it’s a war of words at this stage and the proof will be in the pudding, as we saw earlier in the year with the DeepSeek moment, it’s not out of the realms of possibility that China is leaping ahead in the AI race,” Miller said.
Leung added that there also are signs of growing institutional confidence in the sector, with Cathie Wood’s Ark Investment Management re-entering Alibaba for the first time in four years this week.
Defying expectations
Peiqian Liu, economist at Fidelity International, explained during a Wednesday webinar that despite challenges, China’s manufacturing ecosystem is still excelling, with breakthroughs in high-tech production fuelled by increased research and development investment and ongoing policy support for science, tech and innovation.
According to Liu, the country also remains a competitive option for low-cost manufacturing, even as the “China Plus One” strategy gains traction.
“Contrary to the notion that as labour costs rise, countries will naturally move up the supply chain and shift most of its production to countries with lower cost, China remains competitive even in some low-cost manufacturing due to its rapid adoption of automation and industrial upgrading,” Liu said.
Moreover, despite fragmented supply chains on the back of US tariffs, Liu explained that in the immediate to short term, corporates and countries in the region have “adjusted their trade practices in response to changing tariffs globally”.
As Liu explained, US imports data indicates a rise in front-loading among Asian investors, as well as increased use of free trade agreements and exemptions to minimise additional tariffs.
Ultimately, despite disruption, Liu said she remains “cautiously optimistic” that China’s competitive edge is persisting, with countries like Singapore, Malaysia, Taiwan and South Korea also carving out new advantages revolving around the tech narrative.
