Emerging markets have shifted from smokestacks to smartphones. Back in 2008, energy and materials companies dominated the MSCI Emerging Markets Index with a 38% weighting, and many of these firms were state-owned enterprises that were more susceptible to infrastructure-driven booms and busts.
Chinese technology-related firms are now the biggest companies by market value in emerging markets as mobile phone usage is accelerating and internet penetration rates are rising. Along with middle class growth, these developments are changing consumption patterns and delivery methods for financial services.
This “tech-tonic” shift over the past decade (information technology now accounts for 28% of index weight) has also come with a decrease in volatility as cyclical, commodity-oriented companies are no longer index heavyweights.
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