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Which came first, the rally in emerging markets, or the boom in its tech stocks?
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The tech sector has become the biggest single grouping in the EM universe this year,
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and that's for the first time since the dot-com boom.
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Cue several, as yet, unsuccessful efforts to label EM texts with a catchy equivalent to the US FANGs —
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Facebook, Amazon, Netflix, and Google.
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But equating the EM sector with hot US techs sells it short.
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Hardware, as well as internet enthusiasm, is what's driving this rally.
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Emerging market equities are enjoying their best year since 2009,
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and the benchmark index is up 17%.
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Earnings upgrades are the biggest driver, particularly in Asia,
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which is 2/3 of the index and that's all of its tech stocks too.
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Even profits of unloved Chinese groups are generally expected to rise,
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giving Asia EM stocks one of their best-ever runs of improving profit forecasts —
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that's 12 months and counting.
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Now that tech sector up 38% this year has led the advances.
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Within that, the leaders include Tencent and Alibaba up 43% and 62%, respectively.
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They're not the only beneficiaries. Samsung Electronics is up 35%,
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and it might become the world's biggest chip maker.
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Taiwan Semiconductor, the world's biggest chip foundry has gained 18%.
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Combined, the 4 have added $325 billion in capitalization.
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Tech hardware stocks are benefiting from several trends.
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One is a perennial optimism around the rising emerging market economy's disposable income,
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as a middle class develops.
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Another, more specific theme,
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is the rise in global demand for chips and other specialized components,
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to power an increasing range of devices that we all like.
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Now after years of consolidation,
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supply, particularly of chips, is limited, and most of that sits in emerging Asia.
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There's also the looming launch of Apple's iPhone 8 models.
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Now speculation abounds as to which company has got which share of the orders.
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About 1/3 of Taiwan's tech sales are iPhone-related according to Citigroup.
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Yet, in spite of the rally and the hype,
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EM techs are still cheaper than their US counterparts.
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They're trading at 15 times earnings, compared with 18 times.
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Now that might spur tech-lovers,
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whether they're an internet enthusiast backing Alibaba
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or fans of Samsung
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to push this rally further still.