Think good tech stocks are only U.S. based? Think again
However, Chi added that from a global perspective, the U.S.-based tech names are not the only digital game in town and that, in emerging markets (EM), a similar revolution is under way and reflected in the surging share prices of digital-economy companies. Just like their counterparts in developed countries, these tech firms are creating and benefiting from a generational shift and getting a boost in the everything-from-home COVID environment.
Chi explained that, since the start of the year, the MSCI Emerging Markets Growth Index, which includes the important new economy names, has gained 13.4 %, according to Bloomberg, while the corresponding value index is down 9.68%, translating into a roughly 23% outperformance by growth over value. She said: “As in the U.S., the divergence became more marked in Q2, coinciding with the height of the pandemic.”
Breaking down the Index, which includes subsets Internet & Direct Marketing Retail, and Interactive & Media Services, the differentiation is even clearer. Between October 2018 and June 2020, the benchmark weight of those two subsectors grew from 10.4% to 19.6%, according to Bloomberg, representing a remarkable 88% increase. This year, the overall MSCI Emerging Markets Index returned 1.75% through July in Canadian dollars; remove the digital element from the equation, however, and the return falls to -3.63%%.
Chi said: “Importantly, the digital universe in emerging markets equities has become very wide and deep. It transcends the China-based stocks that made a name for themselves, even among Western investors, pre-2020.
“In Internet & Direct Marketing, publicly traded companies include fast-growing enterprises in e-commerce and food delivery. For instance; in Interactive & Media Services, they include search and message firms and this burgeoning group transcends China’s border. In total, there are 22 companies in the two relevant MSCI EM subsectors, and South Korea and India are well-represented, the latter in particular in telecom.