EquitiesOct 29 2012

Local vs global: How to exploit emerging market tech growth

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Emerging markets remain popular with investors looking for strong returns in a global slowdown and fund managers and investors looking to gain exposure to the technology sector are no exception.

Of the top 250 information and communication technology (ICT) companies in the world, 15 are registered in the traditional Bric economies of Brazil, Russia, India and China, while a further 18 are registered in Chinese Taipei, according to the OECD Internet Economy Outlook 2012. This means approximately 13 per cent of the total are based in emerging market economies.

Of the firms identified by the report revenues rose by more than 20 per cent a year in India, Qatar, Bermuda, Mexico, Russia, Chinese Taipei and Eqypt, reflecting a number of factors, including GDP growth and ICT market growth. In addition the report shows that regionally revenues have grown faster over the past 11 years in the Middle East, at 15 per cent a year, and Africa at 12 per cent a year.

The question for investors, is how best to gain exposure to this growth.

Mixing it up

With such a growing technology capability Walter Price, senior portfolio manager at RCM Technology Trust, says their philosophy has been to do a mix of multi-national and domestic companies.

He says: “We’ve traditionally owned some Chinese stocks in the portfolio, and probably the biggest winner over the past three years has been Baidu [Chinese internet search engine], which we no longer own, but clearly that’s been an example of where the Chinese government kind of helps the local guy gain share. They have an unfair competitive advantage; they helped Baidu gain market share and influenced Google’s decision to leave the market.”

Other domestic stocks favoured by the manager include C-Trip, the leading internet travel company, but the regional stockpicks are still mixed with international companies such as Qualcomm.

“One of the reasons we own Qualcomm is because it is selling into the white box phone business [unbranded phones] in China. If you look at where the big growth in the phone industry is right now, it is smart phones that sell for less than $100 that are manufactured in southern China and have a Qualcomm chip in them and that are able to be 3G.”

He adds: “I think with these powerful multi-national companies like Qualcomm that are able to manufacture products it is more difficult for the Chinese to compete with [and] that’s a good way to play the growth in emerging markets.