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Who are the metaverse natives in Asia?
2021/12/7
Premia Asia Innovative Technology ETF (AIT) since its inception in 2018, was designed to capture the Asia leaders powering the growth of existing and emerging innovative technologies. Without a doubt, the hottest theme trending now is the Metaverse, as Facebook’s CEO Mark Zuckerberg announced earlier that the company name change and sees the Metaverse as the “successor to the mobile internet”. While this is still an emerging but quickly evolving topic, there are already considerable number of Asia leaders active in the space as emerging metaverse natives. How can investors position for opportunities early in this space?

Premia Asia Innovative Technology ETF (AIT) since its inception in 2018, was designed to capture the Asia leaders powering the growth of existing and emerging innovative industries. Without a doubt, the hottest theme trending now is the Metaverse, as Facebook’s CEO Mark Zuckerberg announced earlier that the company would change its name to Meta and sees the Metaverse as the “successor to the mobile internet”.

In this article, we would like to investigate whether AIT, a product that was launched more than 3 years ago, would be able to capture the investment opportunities generated by the Metaverse as it has promised in its methodology.

What is the Metaverse?

211213223124635.jpg

In order to identify the corresponding investment opportunities, we have to define the Metaverse first. The term “Metaverse”, together with another term “Avatar”, was coined by science fiction writer Neal Stephenson in his 1992 novel, Snow Crash. In Stephenson’s vision, Metaverse is a “virtually reality-based successor to the internet”, where humans would interact with each other as avatars. It sounds like the virtual reality game in the movie Ready Player One.

However, as no one could envision what the Internet would be like exactly in the 1980s, it is also impossible to perfectly describe Metaverse now, and relating Metaverse to Ready Player One would just limit our imagination. That said, one could still have a glimpse of what some building blocks are needed to enable the Metaverse from Mark’s and Neal’s description of the Metaverse.

Computing power and Semiconductors

211208115729310.jpg

The first building block would be semiconductors. Since the Metaverse is “the successor”, computers and the internet network would still form the backbone of the Metaverse, but the hardware would have to upgrade for more powerful computation and faster data transmission, and in many cases specialty chips with specific functions to build the 3D virtual infrastructure where people could interact with each other with low latency.

The most direct impact of the upgrade would be the semiconductor industries as chips are used in every aspect of the Metaverse, such as the data centre, 5G base stations, personal computers, and wearables, etc. As the Metaverse theme unfolds and develops, the demand for semiconductors, especially the most advanced ones, could extend far into the future and continue to make new highs.

In fact, Meta (formerly known as Facebook) has just placed an order for AMD’s new generation processors to support its Metaverse projects, and TSMC’s share prices reacted positively as they are one of the suppliers to AMD. Apart from TSMC, AIT contains four other semiconductor companies which could also benefit from the Metaverse theme:

Ticker

Name

Weight

Industry

2303 TT

United Microelectronics

2.8%

Semiconductor Manufacturing

8035 JP

Tokyo Electron

2.5%

Semiconductor Manufacturing

2454 TT

MediaTek Inc

2.4%

Semiconductor Devices

2330 TT

TSMC

2.2%

Semiconductor Manufacturing

000660 KS

SK Hynix Inc

1.9%

Semiconductor Devices

AI, Augmented reality, Virtual reality, Wearable Technology

211208123323074.jpg

The second building block would be wearables. The major difference between the Metaverse and current web experience would be to give sensory feelings to the users in the virtual world. To do so, the users would have to wear headsets, gloves, and suits like those in Ready Player One. Probably, the suits are a bit far from realization, but the VR headsets have existed for a while, such as Meta’s Oculus VR headsets, and the haptic gloves may soon be available to the retailers as Meta has revealed the prototype of the haptic gloves in November after they have changed their name.

In AIT, there are two companies that have experience in designing wearables and may benefit from the trends. Sony and Nintendo have invented the PlayStation VR headset and the Switch’s motion-sensitive controllers, respectively. On the other hand, the components, such as lenses and sensors, that are used in wearables are equally important, and some of these manufacturing companies are holdings of AIT. Hence, AIT has the potential of full coverage of both the upstream and downstream of the wearable markets that could generate growth from the Metaverse theme.

Linking up all these is also increasing application of AI technology, which will be applied to observe and learn the behaviour of the users in action. The data will then be used to create AI Personas – the essential models of the users that participate in parts of the Metaverse. AI Personas can predict how certain users or groups would act based on their interests, preferences, and motivations. It will form the foundation to customize and adapt the player’s experience with the most engaging content and interactions at the individual level. They will also form important members of the metaverse – the NPCs (non-player characters) in the recent movie Free Guy including the leading character Blue Shirt Guy played by Ryan Reynolds might give the audience a glimpse of one possible scenario how this may take shape.

Analysts expect AI technology will be vital to the development of Metaverse, ranging from digital environment generation, realistic AI character behaviours forming, to automated bug fixing. iFlytek, a leader in intelligent speech and AI, has just announced to release a virtual human interaction platform, which uses emotion to run through the background logic from text semantics to tone and facial expression, creating a real assistant or partner in the virtual world.

Baidu, which has been investing in AI for more than decade and has recently unveiled its second-generation AI chip, has launched a Metaverse app, called Xirang (“Land of Hope”). It allows users to create avatars and chat with other participants with features like online education and elements of digital marketing in the future.

Ticker

Name

Weight

Industry

6758 JP

Sony Group Corp

2.6%

Consumer Electronics

2382 HK

Sunny Optical Tech

2.5%

Specialty Technology Hardware

006400 KS

Samsung SDI Co Ltd

2.3%

Electronics Components

6981 JP

Murata Manufacturing

2.0%

Electronics Components

005930 KS

Samsung Electronic

1.9%

Communications Equipment

002230 CH

iFlytek

1.9%

Software

2308 TT

Delta Electronics

1.9%

Electronics Components

7974 JP

Nintendo

1.6%

Consumer Electronics

9888 HK

Baidu

1.5%

Internet Media & Services

Content providers and aggregators, E-Sports and Virtual influencers

211207213405747.jpg

The success of Roblox and Fortnite is showing the potential in transforming the gaming industry to the prototype of metaverse. Critics even suggest these virtual platforms are providing users a new lifestyle combing social space, video game, and entertainment. The game creators which have a vast inventory of popular games would have an advantage as they could migrate their games to the new platform. More so, they could sell their famous characters to the users as avatars. A very good example in AIT would be Nintendo.

Virtual reality games or Esports may eventually become Olympics events one day – in fact eight popular games, including PUBG Mobile, League of Legends, Dota 2, etc. are already making their debut at the upcoming Asian Games 2022. In addition to Nintendo, AIT is holding Sea Ltd., Tencent and NetEase, which are the developers or publishers of the eight games that would be played as Esports in the Asian Games 2022 with medals being rewarded. On the other hand, virtual artists and influencers such as Hatsune Miku in Japan, Luo Tianyi in China and Aespa and Eternity in Korea have also opened up whole new horizons across the entertainment, fashion and luxury markets already.

Ticker

Name

Weight

Industry

6758 JP

Sony Group Corp

2.6%

Consumer Electronics

SE US

Sea Ltd.

2.2%

Online Marketplace

9999 HK

NetEase Inc

2.0%

Video Games

700 HK

Tencent Holdings

1.6%

Internet Media & Services

7974 JP

Nintendo

1.6%

Consumer Electronics

9626 HK

Bilibili

1.1%

Entertainment Content

Virtual platforms, Blockchain, Digital payment systems and GameFi

211207213420836.jpg

Other than gaming, most of the human activities that happened in the real world should be able to replicate in the Metaverse, such as attending classes, business meetings, and all sorts of economic activities. All of these are not entirely new to the current web experience but may need an upgrade on the infrastructure and business model.

Given the vast database of users, existing platforms, such as Tencent and Alibaba, are well positioned in monetizing the Metaverse trend. While cryptocurrencies are gaining popularity as important medium for investment and transactions in the Metaverse, and in some cases becoming accepted as operating currencies in some countries such as El Salvador, fiat currencies are still the mainstream in the physical world. As such, we believe online payment platforms which could deal with fiat currencies and handle cryptos transactions with on-ramp/ off-ramp connectivity would have a better foundation in catching the Metaverse’s tide.

Naver and Kakao, two companies in AIT, may be one of the beneficiaries. While both of them could handle transactions in the reality, Naver and Kakao have issued digital assets called LINK and KLAY, respectively. Similarly, Z Holdings (parent of Line and Yahoo), Tencent and Alibaba also have related projects and are well placed for the opportunity sets.

Ticker

Name

Weight

Industry

4689 JP

Z Holdings

3.0%

Internet Media & Services

SE US

Sea Ltd.

2.2%

Online Marketplace

035420 KS

NAVER Corp

2.2%

Internet Media & Services

035720 KS

Kakao Corp

2.0%

Internet Media & Services

700 HK

Tencent Holdings

1.6%

Internet Media & Services

9988 HK

Alibaba Group Holding

1.2%

Online Marketplace

Conclusion

Metaverse is still in its infant stage and related technologies are far from mature. It is almost impossible to define it perfectly, not to mention finding the winning stocks in this area. When the internet became available to the public in the early 1990s, many of today’s internet giants, such as Google and Facebook, have not even established. Hence, making a bet on a single stock to ride on the Metaverse theme would be too risky compared to owning a basket of stocks.

An even better solution is to invest in a basket of stocks that could adjust itself dynamically according to market movements and technology development, which is what AIT is designed for. AIT uses FactSet’s Revere Business & Industry Classification System (RBICS) to identify companies by their revenue breakdown involved in three major themes: Digital Transformation, Health & Life Science Innovation, Robotics & Automation. Since Metaverse is part of the Digital Transformation, it is not surprising that AIT is holding close to 20 stocks related to the theme, even though the Metaverse concept did not exist at the lunch of AIT. Investors, who would like to participate in the Metaverse theme but do not want to be subject to concentrated risks, may consider investing in Premia Asia Innovative Technology ETF.

  • 賴子健
    賴子健 , CFA

    合夥人兼聯合首席投資官

  • 朱荣熙
    朱荣熙

    投資總監

Premia Asia Innovative Technology ETF (AIT) since its inception in 2018, was designed to capture the Asia leaders powering the growth of existing and emerging innovative technologies. Without a doubt, the hottest theme trending now is the Metaverse, as Facebook’s CEO Mark Zuckerberg announced earlier that the company name change and sees the Metaverse as the “successor to the mobile internet”. While this is still an emerging but quickly evolving topic, there are already considerable number of Asia leaders active in the space as emerging metaverse natives. How can investors position for opportunities early in this space?


Premia Asia Innovative Technology ETF (AIT) since its inception in 2018, was designed to capture the Asia leaders powering the growth of existing and emerging innovative industries. Without a doubt, the hottest theme trending now is the Metaverse, as Facebook’s CEO Mark Zuckerberg announced earlier that the company would change its name to Meta and sees the Metaverse as the “successor to the mobile internet”.

In this article, we would like to investigate whether AIT, a product that was launched more than 3 years ago, would be able to capture the investment opportunities generated by the Metaverse as it has promised in its methodology.

What is the Metaverse?

211213223124635.jpg

In order to identify the corresponding investment opportunities, we have to define the Metaverse first. The term “Metaverse”, together with another term “Avatar”, was coined by science fiction writer Neal Stephenson in his 1992 novel, Snow Crash. In Stephenson’s vision, Metaverse is a “virtually reality-based successor to the internet”, where humans would interact with each other as avatars. It sounds like the virtual reality game in the movie Ready Player One.

However, as no one could envision what the Internet would be like exactly in the 1980s, it is also impossible to perfectly describe Metaverse now, and relating Metaverse to Ready Player One would just limit our imagination. That said, one could still have a glimpse of what some building blocks are needed to enable the Metaverse from Mark’s and Neal’s description of the Metaverse.

Computing power and Semiconductors

211208115729310.jpg

The first building block would be semiconductors. Since the Metaverse is “the successor”, computers and the internet network would still form the backbone of the Metaverse, but the hardware would have to upgrade for more powerful computation and faster data transmission, and in many cases specialty chips with specific functions to build the 3D virtual infrastructure where people could interact with each other with low latency.

The most direct impact of the upgrade would be the semiconductor industries as chips are used in every aspect of the Metaverse, such as the data centre, 5G base stations, personal computers, and wearables, etc. As the Metaverse theme unfolds and develops, the demand for semiconductors, especially the most advanced ones, could extend far into the future and continue to make new highs.

In fact, Meta (formerly known as Facebook) has just placed an order for AMD’s new generation processors to support its Metaverse projects, and TSMC’s share prices reacted positively as they are one of the suppliers to AMD. Apart from TSMC, AIT contains four other semiconductor companies which could also benefit from the Metaverse theme:

Ticker

Name

Weight

Industry

2303 TT

United Microelectronics

2.8%

Semiconductor Manufacturing

8035 JP

Tokyo Electron

2.5%

Semiconductor Manufacturing

2454 TT

MediaTek Inc

2.4%

Semiconductor Devices

2330 TT

TSMC

2.2%

Semiconductor Manufacturing

000660 KS

SK Hynix Inc

1.9%

Semiconductor Devices

AI, Augmented reality, Virtual reality, Wearable Technology

211208123323074.jpg

The second building block would be wearables. The major difference between the Metaverse and current web experience would be to give sensory feelings to the users in the virtual world. To do so, the users would have to wear headsets, gloves, and suits like those in Ready Player One. Probably, the suits are a bit far from realization, but the VR headsets have existed for a while, such as Meta’s Oculus VR headsets, and the haptic gloves may soon be available to the retailers as Meta has revealed the prototype of the haptic gloves in November after they have changed their name.

In AIT, there are two companies that have experience in designing wearables and may benefit from the trends. Sony and Nintendo have invented the PlayStation VR headset and the Switch’s motion-sensitive controllers, respectively. On the other hand, the components, such as lenses and sensors, that are used in wearables are equally important, and some of these manufacturing companies are holdings of AIT. Hence, AIT has the potential of full coverage of both the upstream and downstream of the wearable markets that could generate growth from the Metaverse theme.

Linking up all these is also increasing application of AI technology, which will be applied to observe and learn the behaviour of the users in action. The data will then be used to create AI Personas – the essential models of the users that participate in parts of the Metaverse. AI Personas can predict how certain users or groups would act based on their interests, preferences, and motivations. It will form the foundation to customize and adapt the player’s experience with the most engaging content and interactions at the individual level. They will also form important members of the metaverse – the NPCs (non-player characters) in the recent movie Free Guy including the leading character Blue Shirt Guy played by Ryan Reynolds might give the audience a glimpse of one possible scenario how this may take shape.

Analysts expect AI technology will be vital to the development of Metaverse, ranging from digital environment generation, realistic AI character behaviours forming, to automated bug fixing. iFlytek, a leader in intelligent speech and AI, has just announced to release a virtual human interaction platform, which uses emotion to run through the background logic from text semantics to tone and facial expression, creating a real assistant or partner in the virtual world.

Baidu, which has been investing in AI for more than decade and has recently unveiled its second-generation AI chip, has launched a Metaverse app, called Xirang (“Land of Hope”). It allows users to create avatars and chat with other participants with features like online education and elements of digital marketing in the future.

Ticker

Name

Weight

Industry

6758 JP

Sony Group Corp

2.6%

Consumer Electronics

2382 HK

Sunny Optical Tech

2.5%

Specialty Technology Hardware

006400 KS

Samsung SDI Co Ltd

2.3%

Electronics Components

6981 JP

Murata Manufacturing

2.0%

Electronics Components

005930 KS

Samsung Electronic

1.9%

Communications Equipment

002230 CH

iFlytek

1.9%

Software

2308 TT

Delta Electronics

1.9%

Electronics Components

7974 JP

Nintendo

1.6%

Consumer Electronics

9888 HK

Baidu

1.5%

Internet Media & Services

Content providers and aggregators, E-Sports and Virtual influencers

211207213405747.jpg

The success of Roblox and Fortnite is showing the potential in transforming the gaming industry to the prototype of metaverse. Critics even suggest these virtual platforms are providing users a new lifestyle combing social space, video game, and entertainment. The game creators which have a vast inventory of popular games would have an advantage as they could migrate their games to the new platform. More so, they could sell their famous characters to the users as avatars. A very good example in AIT would be Nintendo.

Virtual reality games or Esports may eventually become Olympics events one day – in fact eight popular games, including PUBG Mobile, League of Legends, Dota 2, etc. are already making their debut at the upcoming Asian Games 2022. In addition to Nintendo, AIT is holding Sea Ltd., Tencent and NetEase, which are the developers or publishers of the eight games that would be played as Esports in the Asian Games 2022 with medals being rewarded. On the other hand, virtual artists and influencers such as Hatsune Miku in Japan, Luo Tianyi in China and Aespa and Eternity in Korea have also opened up whole new horizons across the entertainment, fashion and luxury markets already.

Ticker

Name

Weight

Industry

6758 JP

Sony Group Corp

2.6%

Consumer Electronics

SE US

Sea Ltd.

2.2%

Online Marketplace

9999 HK

NetEase Inc

2.0%

Video Games

700 HK

Tencent Holdings

1.6%

Internet Media & Services

7974 JP

Nintendo

1.6%

Consumer Electronics

9626 HK

Bilibili

1.1%

Entertainment Content

Virtual platforms, Blockchain, Digital payment systems and GameFi

211207213420836.jpg

Other than gaming, most of the human activities that happened in the real world should be able to replicate in the Metaverse, such as attending classes, business meetings, and all sorts of economic activities. All of these are not entirely new to the current web experience but may need an upgrade on the infrastructure and business model.

Given the vast database of users, existing platforms, such as Tencent and Alibaba, are well positioned in monetizing the Metaverse trend. While cryptocurrencies are gaining popularity as important medium for investment and transactions in the Metaverse, and in some cases becoming accepted as operating currencies in some countries such as El Salvador, fiat currencies are still the mainstream in the physical world. As such, we believe online payment platforms which could deal with fiat currencies and handle cryptos transactions with on-ramp/ off-ramp connectivity would have a better foundation in catching the Metaverse’s tide.

Naver and Kakao, two companies in AIT, may be one of the beneficiaries. While both of them could handle transactions in the reality, Naver and Kakao have issued digital assets called LINK and KLAY, respectively. Similarly, Z Holdings (parent of Line and Yahoo), Tencent and Alibaba also have related projects and are well placed for the opportunity sets.

Ticker

Name

Weight

Industry

4689 JP

Z Holdings

3.0%

Internet Media & Services

SE US

Sea Ltd.

2.2%

Online Marketplace

035420 KS

NAVER Corp

2.2%

Internet Media & Services

035720 KS

Kakao Corp

2.0%

Internet Media & Services

700 HK

Tencent Holdings

1.6%

Internet Media & Services

9988 HK

Alibaba Group Holding

1.2%

Online Marketplace

Conclusion

Metaverse is still in its infant stage and related technologies are far from mature. It is almost impossible to define it perfectly, not to mention finding the winning stocks in this area. When the internet became available to the public in the early 1990s, many of today’s internet giants, such as Google and Facebook, have not even established. Hence, making a bet on a single stock to ride on the Metaverse theme would be too risky compared to owning a basket of stocks.

An even better solution is to invest in a basket of stocks that could adjust itself dynamically according to market movements and technology development, which is what AIT is designed for. AIT uses FactSet’s Revere Business & Industry Classification System (RBICS) to identify companies by their revenue breakdown involved in three major themes: Digital Transformation, Health & Life Science Innovation, Robotics & Automation. Since Metaverse is part of the Digital Transformation, it is not surprising that AIT is holding close to 20 stocks related to the theme, even though the Metaverse concept did not exist at the lunch of AIT. Investors, who would like to participate in the Metaverse theme but do not want to be subject to concentrated risks, may consider investing in Premia Asia Innovative Technology ETF.

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