Tips for investing in global tech

When investing in technology companies, the key is to focus on their growth potential rather than where they operate.

“We’re region-agnostic,” says Mark Lin, vice-president and portfolio manager at CIBC Asset Management. To find technologies and companies that fit his team’s investment criteria, he focuses on the following three factors:

• Whether a company and its industry are growing.
• Whether there’s consistency in a company’s earnings and free cash flow growth.
• Whether a company has staying power. Says Lin, “We like to [assess] if a company with high profitability will still be an industry leader in five years.”

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But, when investing outside North America, Lin takes extra steps. For example, the accounting and reporting practices of foreign companies “can be quite different from the accounting principles we see in the U.S.,” he says. “We have to be aware of that to make sure their financial statements are comparable to the ones we analyze [domestically].”

He also stays up to date on the regulatory rules across the regions he’s invested in.

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Where he’s invested

Lin likes China-based Tencent, “which is a leader in providing online gaming and messaging services, and in providing e-commerce payment functions on [its] platforms.”

Tencent offers competitive services, says Lin, because only Facebook beats its offerings in terms of number of users and market share. For example, Tencent offers a 2G messaging service called QQ, and a wireless chat service called WeChat that’s free for users. “These have 700 or 800 million users […] while China itself has 1.4 billion people. WeChat has the lion’s share of Tencent’s user base.”

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Further, notes Lin, “These services can continue to grow, partially because Tencent is a pioneer in how to monetize online video games. They’re able to sell to users who [consistently] pay for the electronic goods they need to play games.”

A tailwind for Tencent is that wireless and video game markets are growing quickly in China, says Lin. “The company has a good track record of generating profit, and we expect it to maintain its status as a leader five years from now.”

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