An Increasing Number of World-Class Technology Companies Are Domiciled in Emerging Markets
Sources: Morningstar, MSCI, RIMES as of 9/30/17. Commodities includes energy and materials sectors. Technology includes information technology sector. Standard deviation is for rolling 10-year periods of monthly returns for the MSCI Emerging Markets Index.
Standard deviation is calculated at net asset value based on monthly returns and is a measure of how returns over time have varied from the mean. A lower number signifies lower volatility.
Emerging markets have shifted from smokestacks to smartphones. Back in 2008, energy and materials companies dominated the MSCI Emerging Markets Index with a 38% weighting, and many of these firms were state-owned enterprises that were more susceptible to infrastructure-driven booms and busts.
Chinese technology-related firms are now the biggest companies by market value in emerging markets as mobile phone usage is accelerating and internet penetration rates are rising. Along with middle class growth, these developments are changing consumption patterns and delivery methods for financial services.
This “tech-tonic” shift over the past decade (information technology now accounts for 28% of index weight) has also come with a decrease in volatility as cyclical, commodity-oriented companies are no longer index heavyweights.
For more insights into investing in 2018, check out the 2018 Outlook.
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