Technology in the aftermath of COVID-19
Kim Catechis and Divya Mathur Portfolio Manager for the Global Emerging Markets strategy discuss the impact of COVID-19 on the technology sector and the ongoing geopolitical strains on the supply chains and rollout for 5G.
It's going to be important for tech companies to invest outside China… This is a golden opportunity for India, in particular, with its large workforce.
Kim: Hello and thanks for tuning in again, this is the AFTERMATH, and today we have the sector of technology. With me to help me to parse through the complex picture that we are seeing is Divya Mathur from the Emerging Markets team. Divya, really good to see you.
Divya: Great to be here Kim.
Kim: So Divya lets start off with the obvious, we have had a few months already of this pandemic and global retrenchment in economic growth, how has the sector fared?
Divya: Well it's been really interesting Kim, because going into 2020 there were high expectations in the technology sector. We have real long-term structural growth drivers, and what COVID-19 did was, it just put a little pause on those. Technology as a sector performed really well, and we did see a slight under performance, but it's great to see that the markets have recognised those long term growth drivers that we are so excited about and taking the key. And those drivers are all based around 5G, and the ultimate roll out of 5G into the world.
Kim: Yeah that makes sense Divya. So tell me before we go to 5G, which I do want to go to, what have you personally marked down as a development that you've seen, that is a departure I guess, for the future?
Divya: So coming into COVID-19, we were seeing re-allocation of the supply chain. Now this was obviously due to some of the challenges we had in the previous years in regards to US restrictions, but it certainly made a lot of the technology companies think about having all their supply chain base in China.
Now in the last 30 years or so, everyone has really talked about the centralised supply chain model, and have as much supply manufacturing facilities in China to feed the rest of the world. What we have seen over the last few years is reassessment of that, and trying to diversify away from China into other parts of Asia, ASEAN and South America. This has been highlighted as golden opportunity for India, in particular, with its large workforce.
So that is something that has been very different and we have seen a number of tech companies do that. Now if we take it one stage further, which is just recently, TSMC announced manufacturing facility for its leading edge nodes in the US1. So this is semiconductor manufacturing company in the US, again very different to what we think about 3 or 4 years ago. So I would say this is a big difference and it's going to be really key for the company to invest outside China into these other regions to ensure they maintain their profitability and will be asking to help this is an increase in investment automation.
Kim: So you did mention the word, 5G, I do have to mention Huawei and the US government and all the geopolitics around that. What does that make you feel about the future for that sector?
Divya: Yeah this is an issue, and we are seeing more and more interference from the US administration in particular, but not just exclusively by the US administration to tech companies and in particular Chinese tech companies.
We have had challenges from as far back as 2014, when the US restricted the issuance of visas to Indian software engineers, this moved on to the semiconductor sector as well. We saw the bid for Micron by the Chinese also that was not approved. So it is a problem and what we now recently see is the Indian’s banning some of the large Chinese super apps, such as Wechat and Tik Tok, and potential talk of the US may do the same.2,3,4.
So, what this is doing is making us think more about the regulatory environment, looking at local apps and looking at those apps where there is less political risk and there is less geopolitical risk, as well.
Kim: Well that makes sense to me. Divya, thank you very much for helping us through this, and thank you for watching. Again, this is the AFTERMATH, please tune in next week, we will have something completely different.
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