When it comes to technology, Silicon Valley remains the first place investors turn to find what the latest and hottest innovation is. After all, the U.S. is home to such tech leaders as Apple Inc. (AAPL) and Google Inc. (GOOG). However, Silicon Valley is only half the tech story.

There are actually more technology firms located in Asia than there are in the U.S. And perhaps more importantly, many of them are trading for metrics far cheaper than America’s tech giants and new social media/internet firms. For investors seriously looking at the tech sector, ignoring Asia is huge mistake.

A Huge, Innovative Market

The year 2009 saw the first time a non-American or European firm was awarded the most patent applications. It was Chinese consumer tech firm Huawei Technologies Co. Ltd. that brought home the gold. What’s more, firms located in the U.S. didn't even crack the top-10 in terms of awarded patents that year. That shift highlights how Asia has changed from being a low-cost manufacturer of electronic components to an innovator. That revolution is across all walks of tech, from clean energy and consumer products, to wireless technology and the mobile internet.

And driving that innovation is Asia’s vast tech-oriented workforce. According to a study by think-tank McKinsey & Co. Inc., India now supplies more technology workers than any other country, while China has surpassed the U.S. in terms of the number of R&D workers. China is now home to more than 1,000 R&D facilities. That’s about five times more than a decade ago.

Yet, Asian tech stocks are cheap. And in many cases cheaper than their American or European rivals.

The MSCI All-Country Asia Information Tech index is trading at a P/E of around 14. That compares to a P/E of 18 for the Technology Select Sector SPDR ETF (XLK), which tracks tech firms in the S&P 500. That P/E for Asian tech is cheaper than historical norms and is actually cheaper than Asian equities as a whole. (For related reading, see: Inside The Surging China Technology Stocks.)

Allocating To Asian Tech

With proven innovation and cheap prices, investors may want to consider adding Asia’s bright tech sector to their portfolios. A prime way to do that is through the iShares MSCI AC Asia Information Tech ETF (AAIT).

AAIT tracks the MSCI All-Country Asia Information Tech index and currently holds 95 different tech firms. This includes stocks like Samsung Electronics Co., Ltd. (SSNLF) and Infosys (INFY). Overall, Japan, South Korea and Taiwan make up about 80% of the ETF. AAIT is up around 13% this year alone. The only drawback to the fund is its low asset base of $7 million and low trading volume. Both could be signs of ETF closures.

To that end, investors may want to bet directly on these three nations via the iShares MSCI Taiwan (EWT), iShares MSCI South Korea Capped (EWY) and WisdomTree Japan Hedged Tech, Media & Telecom Fund (DXJT). Both EWT and EWY feature double-digit exposure to tech firms, while the DXJT focuses on the sector in tech-heavy Japan and provides a yen hedge.

Perhaps no nation has embraced technology like China. From clean energy firms like Trina Solar Ltd. (TSL) to internet companies like SINA Corp. (SINA), China is a well-established tech hotbed. And given China’s dominance in tech, investors may want specifically bet on the nation. The broad Guggenheim China Technology ETF (CQQQ) allows investors to bet on 64 of China’s tech firms. The Chinese “Cubes” have managed to produce a 9.89% annual return since inception in 2009. (For related reading, see: A Dragon-Sized Play In Chinese Tech.)

The Bottom Line

Asia’s tech sector is top-notch. It continues to grow and produce stellar innovations and products. For investors, ignoring it could be putting their portfolio in peril, especially since shares of Asian tech firms tend to be so cheap compared to their developed-market counterparts.

Related Articles
  1. Chart Advisor

    Trading Market Leading Technology Stocks

    The technology sector has taken off. These four stocks have led the charge, racking up more than 10% gains in the last month alone.
  2. Chart Advisor

    Technology And Healthcare Stocks To Watch

    Two sectors continue to dominate, and these stocks within them are still seeing exception returns.
  3. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  4. Mutual Funds & ETFs

    Pimco’s Top Funds for Retirement Income

    Once you're living off the money you've saved for retirement, is it invested in the right assets? Here are some from PIMCO that may be good options.
  5. Chart Advisor

    Watch This ETF For Signs Of A Reversal (BCX)

    Trying to determine if the commodity markets are ready for a bounce? Take a look at the analysis of this ETF to find out if now is the time to buy.
  6. Mutual Funds & ETFs

    ETFs Can Be Safe Investments, If Used Correctly

    Learn about how ETFs can be a safe investment option if you know which funds to choose, including the basics of both indexed and leveraged ETFs.
  7. Mutual Funds & ETFs

    The Top 5 Large Cap Core ETFs for 2016 (VUG, SPLV)

    Look out for these five ETFs in 2016, and learn why investors should closely watch how the Federal Reserve moves heading into the new year.
  8. Economics

    India: Why it Might Pay to Be Bullish Right Now

    Many investors are bullish on India for all the right reasons. Does it present an investing opportunity?
  9. Investing Basics

    Building My Portfolio with BlackRock ETFs and Mutual Funds (ITOT, IXUS)

    Find out how to construct the ideal investment portfolio utilizing BlackRock's tools, resources and its popular low-cost exchange-traded funds (ETFs).
  10. Investing

    3 Things About International Investing and Currency

    As world monetary policy continues to diverge rocking bottom on interest rates while the Fed raises them, expect currencies to continue their bumpy ride.
RELATED FAQS
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center