Chinese growth driving global technology demand

Technology trends

Walter Price, senior portfolio manager at RCM Technology Trust, notes a clear trend in technology in emerging markets is the growth of e-commerce and internet development.

“I think what we’ve seen is that China is kind of skipping the mall build-out phase we went through in a lot of developed markets, and is going right to e-commerce from the neighbourhood stores.

“That’s not to say that there aren’t some destination malls being built in some second and third tier cities, but instead people are going onto the web to look for luxury goods and attractive products that they see on TV or they see on the web or western shows, and they’re buying them on the internet and having them delivered.”

He adds: “You have also got internet video that’s growing really fast in China as an alternative to the state media, and you’ve got e-commerce which is growing really fast and has one of the highest growth rates in any of the countries around the world and that causes rapid growth for new technology products.”

Mr Price notes one of the big issues for the PC industry has been the rise of the tablet computer in China, particularly as tablets suitable for surfing the web and watching internet video are priced at roughly $100 in southern China.

“As a result, because the price point is so much lower than a PC in China, you’re seeing people buying those instead of PCs, and so the whole worldwide PC industry has gone into this slow growth or no growth phase, simply because of what’s going on in emerging markets. I think we’re seeing many interesting phenomena like that.”

However he warns that while the growth of the internet and the desire of the Chinese to try and differentiate themselves can see technology brands grow rapidly, it can also go the other way.

“If they see a new phone from say Samsung they may buy less of the iPhone, as they see people carrying the Samsung Note – the product that fits in people’s handbags – so the acceleration and deceleration of these luxury products are very strong.”

Dmitry Solomakhin portfolio manager of the Fidelity Global Technology fund, adds that for some consumer technology products emerging markets already represents a significant proportion of global demand, with China currently the second largest market for LCD TV sales.

The manager explains: “Overall, emerging markets as a whole represent a long runway of growth because they are still very under-penetrated in terms of technology, both in consumer as well as enterprise IT investments.

“At present, in the consumer technology categories, demand seems to be bifurcated between a relatively small proportion of aspirational buyers who are happy to pay a premium for their favourite brands - not dissimilar to the luxury goods market - and a significant proportion of value buyers going for lower cost options.