Tech Rout Drags Down Emerging Markets Along With Everyone ElseBy and
Developing-nation stock investors get more exposure to tech
Benchmark EM equity index falls the most in three weeks
Developing economies have been relying less on commodity producers and becoming more technology-driven in the past few years. That also means emerging-market equities are more vulnerable to moments of global weakness in the sector.
Samsung Electronics Co., Tencent Holdings Ltd. and Alibaba Group Holding Ltd. were the biggest drags Wednesday on the MSCI Emerging Markets Index, which fell the most in three weeks after a report that Apple Inc. was cutting back on orders tied to the IPhone 8 dragged down Asia-based suppliers. Those same three stocks were responsible for a quarter of the gauge’s advance this year as it headed for the best annual rally since 2009.
“Everyone always thinks about emerging markets as historically tied to commodities and metals, but emerging markets now are actually driven by technology,” said Brian Wolahan, a senior portfolio manager at Acadian Asset Management Inc. in Boston, who helps oversee $86 billion.
Investors wary of the biggest U.S. technology stocks after their unprecedented rally have been eyeing cheaper alternatives in emerging markets. Just like their U.S. counterparts, developing-nation tech giants have surged this year, but their valuation discount is near 23 percent.
“Those tech shares have been driving the market up this year and now we are seeing some reversal,” said Morgan Harting, a New-York based portfolio manager at AllianceBernstein, who adds he is still bullish on emerging-market stocks, favoring Chinese industrials where he sees a better earnings outlook.