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'Tech outside the US' as a better opportunity in tech: Strategist

As big names in tech Amazon (AMZN) and Microsoft (MSFT) gear up to report their latest quarterly earnings, many on Wall Street look towards this week for a signal as a to how the market may move, considering the weight of these companies within the S&P 500 (^GSPC). But, could there be more to the story for the tech sector?

TPQ Advisory Founder & CIO Jay Pelosky joins Yahoo Finance to give insight into the performance of the tech sector and why he is looking outside of the US for opportunities in the tech sector.

Pelosky offers his views on China's tech sector: "We're more keen on tech outside the United States, and in particular, in China. And so, we have identified what we call a two-tech stack divide between the US and China, where both countries are basically sealing off their tech sectors from each other, and we think that creates a real opportunity within China tech, which has been a huge laggard versus the US. Its e-commerce market is twice the size of the US, growing at 10% per annum, and the stocks, like Alibaba (BABA), Tencent (0700.HK), etc, are trading at a 50 to 60% discount to the United States tech stocks."

For more expert insight and the latest market action, click here to watch this full episode.

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This post was written by Nicholas Jacobino

Video transcript

- Jay, I'm curious. As we wait for those Nvidia earnings, what is going to be the thing that drives the tech rally moving forward throughout this month here, particularly given that we're starting things off with Tesla, and I could imagine that their earnings are not going to be very good.

- Well, earnings are going to be the factor for sure. That's something we've talked about for some time with our clients. We've kind of traded off rate cuts, which are the thing that excited people in the fall and over the course of the winter for earnings growth. And, you know, these companies, many of them, are generating tremendous earnings. But we actually have a different take. We're more keen on tech outside the United States and, in particular, in China. And so we have identified what we call a two tech stack divide between the US and China, where both countries are basically sealing off their tech sectors from each other. And we think that creates a real opportunity within China tech, which has been a huge laggard versus the US, its e-commerce market is twice the size of the US, growing at 10% per annum where in the stocks like Alibaba, Tencent, et cetera, are trading at a 50% to 60% discount to the United States tech stocks.

So we look at Apple, which you were talking about earlier with the prior guest. Apple is the example of a US company and a US stock suffering because it is losing market share in China, which is its biggest market. And it's losing that market share because China is trying to drive its own home-grown tech companies and excluding the US just like we're doing to them. And so we see tech in China as a real interesting way to play emerging markets, which have been a big laggard.

- And Jay, we're seeing this call get more and more attention here. You mentioned Alibaba, and you mentioned Tencent. When we're trying to identify that upside, that investment opportunity, what is the upside look like, do you think, in some of these names?

- Well, I think it's huge. I think it's one of the best risk reward opportunities in the world because these stocks are selling at eight times. Alibaba is at seven to eight times earnings. They're growing. They're going to dominate China and we think probably Southeast Asia, which is the fastest growing region of the world.

And so the opportunity, we think on the risk side, there's limited risk because everyone who wants to be out of China has sold. They're trading at eight times earnings. They're buying back stock. In the upside, the reward, we think, is considerable. As an example, we focus mainly on ETFs here at TPW advisory. K Web, which is the China tech ETF, could double from its current price around 26 bucks and then double again before getting to its March 2021 high, which was over $100.

So you look at US magnificent seven, close to all time highs until the last week or two. And then you look at K Web, which is can double and double again before it gets to its 2021 high. And so we think that's really quite compelling.