The Emerging Sector in EM Equity

October 26, 2017 | David Hernandez, CFA, Director of Traditional Manager Search

This week’s Chart of the Week examines how investment opportunities in emerging markets have changed over the last seven years. Historically investors have associated emerging markets with commodities but this view is becoming outdated. In 2011, Financials, Energy and Materials were the three largest sectors within the MSCI Emerging Markets (EM) Index. The Information Technology (IT) sector constituted 12% of the benchmark. Fast forward to present day and IT has now more than doubled to 27% while Energy and Materials have both halved.

This evolution speaks to the economic developments several emerging countries have experienced over the last two decades, with increases in population and income. This can be especially seen in China where companies like Alibaba, Tencent, and Baidu have capitalized on the expanding middle class. Investors have taken notice of the growth potential and the IT sector within EM has led the way in 2017 returning just over 50% through September. Investors can debate whether these stocks have gotten ahead of themselves but the shift in investment opportunity over the last decade is unquestionable.

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