Skip to content

This is a chapter from the Emerging markets: An evolving landscape paper. To read all chapters in this paper, click here.

Chapter preview

Global leadership from emerging market (EM) technology companies will be instrumental in driving the growth of the asset class

  • EM technology companies have experienced significant growth, evolving the shape of the asset class—it is now the dominant sector in EMs.
  • The growth in the sector has been driven by high quality companies delivering earnings growth.
  • Consensus earnings growth expectations for EM technology remain high, with more attractive growth and valuations compared to nearest competitors—US technology.
  • The volume of innovation should support further growth in EM technology compared to other regions.

Technology has grown to be the dominant sector in EM.

Technology represents almost a quarter of the MSCI EM Index. It has almost doubled in size since 2010 due to its positive performance and has been the best performing sector over the long term.1 This is reflective of the broader change in the shape of the asset class over the past 15 years. EMs are no longer dominated by commodities and cyclicals – the asset class has global technology leaders that offer innovative products and services, as well as domestic companies which are capitalising on enhancements in digitisation.

Technology in EMs has gone from strength to strength. It has evolved to be the most dominant sector in the index by consistently delivering on earnings. Compared to a decade ago, its index weight has doubled so now its relative contribution to index performance is even more impactful than before. The sector is composed of high-quality companies with stronger earnings growth expectations and more attractive valuations than its nearest peers—the US technology industry. We think this valuation gap versus the US can close. We believe EM technology will continue to compound its high returns and growth and achieve the valuation which is reflective of its global leadership. This global recognition of EM technology’s leadership and the companies’ delivery of earnings growth is what can turn the tide for EM as a whole, helping to navigate towards an exciting future.

Endnote

  1. Source: FactSet, as of 30 June 2024.

WHAT ARE THE RISKS?

All investments involve risks, including possible loss of principal. Please note that an investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges. Past performance is no guarantee of future results. 

Equity securities are subject to price fluctuation and possible loss of principal.

International investments are subject to special risks including currency fluctuations, social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.

Commodities and currencies contain heightened risk that include market, political, regulatory, and natural conditions and may not be suitable for all investors.

The government’s participation in the economy is still high and, therefore, investments in China will be subject to larger regulatory risk levels compared to many other countries.

There are special risks associated with investments in China, Hong Kong and Taiwan, including less liquidity, expropriation, confiscatory taxation, international trade tensions, nationalization, and exchange control regulations and rapid inflation, all of which can negatively impact the fund. Investments in Taiwan could be adversely affected by its political and economic relationship with China.

US Treasuries are direct debt obligations issued and backed by the “full faith and credit” of the US government. The US government guarantees the principal and interest payments on US Treasuries when the securities are held to maturity. Unlike US Treasuries, debt securities issued by the federal agencies and instrumentalities and related investments may or may not be backed by the full faith and credit of the US government. Even when the US government guarantees principal and interest payments on securities, this guarantee does not apply to losses resulting from declines in the market value of these securities.

IMPORTANT LEGAL INFORMATION

This material is intended to be of general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy. All investments involve risks, including possible loss of principal. There is no guarantee that a strategy will meet its objective. Performance may also be affected by currency fluctuations. Reduced liquidity may have a negative impact on the price of the assets. Currency fluctuations may affect the value of overseas investments. Where a strategy invests in emerging markets, the risks can be greater than in developed markets. Where a strategy invests in derivative instruments, this entails specific risks that may increase the risk profile of the strategy. Where a strategy invests in a specific sector or geographical area, the returns may be more volatile than a more diversified strategy.

This site is intended only for EMEA Institutional Investors. Using it means you agree to our Anti-Corruption Policy.

If you would like information on Franklin Templeton’s retail mutual funds, please visit www.franklinresources.com to be directed to your local Franklin Templeton website.

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.