“If you look at the emerging markets index, it has the highest weighting in IT,” Mobius said yesterday at a Hong Kong media briefing.
IT represents around 27% of the MSCI Emerging Markets Index. The figure is higher than the 16% weighting on the MSCI World Index and 23% on the MSCI USA, he said.
He added that because of the internet boom, the weightings in the EM index have changed. Ten years ago, energy accounted for 30% of the index, while IT was only 13%. The two sectors have switched places, with energy only comprising 14% of the index.
Indeed, information technology in emerging markets has consistently outperformed the broader emerging markets, according to FE data.
Over a three-year-period, the MSCI Emerging Markets Information Technology Index returned 54.14%, while the MSCI Emerging Markets returned 7.29%.
Three-year cumulative return of EM and EM IT
However, concerns over valuations surround the sector. For example, Andrew Swan, Blackrock’s head of Asian and global emerging market equities, said in June that he is cautious on the sector’s valuations.
IT’s expanding P/E ratio is due to the market pricing in new technologies, which Swan said was too early to do. His views are reflected in the fund’s underweighting of Taiwan, Hong Kong and Singapore equities.
Favoured markets
Templeton’s Mobius said that he is bullish on India in the context of large EM economies and among smaller markets, Vietnam.
“India now is probably at the stage where China was 10 years ago and partly because of this internet revolution that is taking place in the country,” he said.
Mobius, a perennial EM optimist, noted that he does not really avoid any emerging markets.
“So often you would find a country that doesn’t look too good, but the individual stocks are,” he said.
An example is South Africa, which was downgraded to junk status by rating agencies. “But then, you have a company in South Africa [Naspers] that has a big stake in Tencent, and it’s a great buy in South Africa.”
Mobius would only avoid a market if its government began taking over companies and “basically stealing their assets”, he said.