Investors tend to focus too much on commodities and not on the opportunities available from emerging markets adopting technology, according to Carlos Hardenberg, who runs the £2.6bn Templeton Emerging Markets investment trust.
The trust is the absolute top performer in the Association of Investment Companies (AIC) Emerging Markets sector over the past year to 24 November, returning 42 per cent compared with the sector average of 20 per cent.
Mr Hardenberg has Chinese tech giants Tencent and Alibaba among his top 10 investments.
He said the key to emerging markets is the rapid adoption of e-commerce and other technology.
The fund manager said consumers and businesses in emerging markets have taken to e-commerce at an early stage, because the existing "old economy" infrastructure wasn’t already in place.
He cited the example of retail, where big shopping centres and high street stores don’t exist, so consumers have moved straight to online shopping, while in developed markets the old economy companies continue to have market share.
Another example is banking, with the traditional network of bank branches having not developed, consumers, as they get wealthier, have moved straight to online payment systems.
He is also keen to invest in financials stocks, including insurance companies, as he feels as the population gets richer, it will have more to insure, and buy protection products.
Mr Hardenberg also likes the healthcare sector, as he feels economic growth will lead to more purchases of health insurance.
But Mr Hardenberg said investors are ignoring these changes, and focusing instead on the traditional driver of emerging market equity performance such as movements in commodity prices, despite technology and financial stocks now making up more than half of the global emerging markets index.
He said more than half of the patents registered around the world now come from emerging markets.
He said: “Emerging markets are no longer driven by commodities. Gone are the plain-vanilla business models of the past that tended to focus on infrastructure, telecommunications or commodity-related businesses, and in their place we are seeing a new generation of very innovative companies that are moving into technology and much higher value-added production processes.
"The technology sector in emerging markets is providing us with many interesting opportunities and we think it is a very exciting time for investors in this space."
Jason Hollands, head of business development and communications at Tilney, said in Dollar terms, the MSCI Emerging Markets index has delivered a total return of 32 per cent year to-date, beating the MSCI World index return of 18 per cent over this period.
Mr Hollands said the fact markets which have risen so strongly remain attractive value reflects the fact that company earnings growth in these regions has rebounded at a pace that has kept share price rises in check, with company results beating the forecasts of analysts whose jobs are to forecast them.
He said: "Global emerging markets therefore appear to the major opportunity for investment bargain seekers but who are also willing to take a long term view."
david.thorpe@ft.com
