How is “digital revolution” in Asia transforming the way we live?

Aug 12, 2018

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Rainie Pan , CFA, FRM

VP Strategy & Analytics

Vicky Hsu

Analyst, Strategy & Analytics

Typically, I wake up by my Xiaomi home AI robot with morning news and weather forecasts. I would then order my breakfast to the office via Meituan and pay with Alipay. Baidu map would find me the closest driver nearby across Didi and other car service platforms and let the driver know the fastest route to my destination. On my way, I would check my Wechat messages and the latest moments of my friend circle. Via my smartphone, I can check my latest fitness data synchronized from my smartwatch and smart-scale; I can also remotely reset my door password for my cleaner lady and control various electrical appliances at my home.

Brought about by the advent of the Internet of Things, digital transformation is quickly moving beyond the realm of future fantasies in movies to become a daily reality. Chinese technology giant Tencent, for instance, has taken the idea of a messenger app to a whole new level with its WeChat platform, which combines the capabilities of an instant messenger, a social network, a search engine, an e-commerce shopping platform, a payment system and plus many more in one ecosystem.

A latest study from Microsoft forecasts that 60% of Asia Pacific’s GDP will be derived from digital products and services created through use of technologies. In this piece, we take a deeper look into 3 digital technology related categories targeted by the Premia FactSet Asia Innovative Technology ETF (3181 HK):

• E-commerce
• Big data & Cloud
• Artificial Intelligence

E-commerce: Alibaba, JD.com

As mentioned in our earlier article China Consumer is King, Alibaba’s e-commerce platform T-mall scored a record high single day sales figure of US$25 billion in 2017, which is 3 times bigger than the combined sales of Black Friday and Cyber Monday in the US. A total of 812 million orders were generated in 24 hours, which equates to 9,400 orders per second. The other Chinese e-commerce giant JD.com has also generated significant sales on that day in its own 6.18 shopping festival.

Apart from the sales figures, it is interesting to notice the expansion of e-commerce ecosystem. On one hand is mobile payments - 90% of payments went through mobile phone, compared to about 40% just 3 years ago – this is largely attributed to the increasing penetration of tools like Alipay and WeChat Pay. On the other hand, we see impressive application of big data and automation in supply chain logistics - the first order of T-mall’s single day sold merchandise arrived at the customer’s door in only 12 minutes after purchase with delivery arranged from the closest warehouse; JD recently launched its drone delivery services and aims to eventually build an automated network from its warehouse inventory management to final delivery.

Big data & Cloud: Baidu, Naver, Tencent, Alibaba, Rakuten

Big data is important to business analytics in this fast-changing environment and to the advancement of deep learning and artificial intelligence. According to global marketing intelligence firm IDC, there’s a US$65 billion big data opportunity in Asia Pacific by 2020, and the trends point to big benefits.

In the ecosystem of big data analytics, the businesses that gathers most data are: search engines, social media platform, and e-commerce platforms, and hence these names surface with little surprise: Baidu, Naver, Tencent, Alibaba, and Rakuten. And almost a natural extension, all of them have initiated cloud services for other institutions to access offerings such as software as a service (SaaS), platform as a service (PaaS) and infrastructure as a service (IaaS). While the combined market share is still small compared to Amazon or Microsoft, these Asian platforms are crucial infrastructure for domestic developments in big data analytics and artificial intelligence.

Behavioral prediction is one example of learning based on big data, and it happens all the time from e-commerce platforms pushing merchandises to me based on previous views, to a map software pushing notifications of traffic conditions of my commonly taken route to home at the usual time I’m about to get off work.

Artificial Intelligence: a technology, not a product

AI has come a very long way since the ground-breaking work of British scientist Alan Turing, who is widely considered as the father of theoretical computer science and artificial intelligence. The term “Artificial Intelligence (AI)”, however, is a rather broad term and applications of AI ranging from gaming, robotics, marketing, to fintech, transportation, healthcare, and education, etc.. On the other hand, including the above-mentioned Cloud platforms, there are various hardware components needed to support AI, such as: sensors, semiconductors, data infrastructure and communication.

We will further dedicate a case-study piece to introduce AI & Robotics and examples of Asian companies leading in various applications:

- Security & Surveillance: Hikvision
- Healthcare: Iflytek
- Consumer Electronics: Sony
- Industrial Automation: FANUC
- Connected Cars: Samsung, Baidu

Related ETFs: Premia Asia Innovative Technology ETF (3181 HK)
Related articles: Technology-enabled innovations: Disrupting Reshaping Asia growth

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