High-tech hunt to help emerging markets

"(High-tech investment) is diverting money from elsewhere the cement and steel sectors probably feel unloved andunwanted," said Matt Linsey who heads Barings Asset Management emerging markets division. "It’s going to help us but it could hurt us too…I think it will take some of the more opportunistic money away."

MONEY CHANGING SECTOR: Fund managers say though some sectors may be losing their appeal, money that is diverted is not necessarily leaving the emerging market universe altogether but rather changing sector. "People are looking more at technology than traditional industries in emerging markets just as they are in developed markets," said Jacob Rees-Mogg, fund manager at Lloyd George Management which specialises in emerging markets.

"Some of the price performance has been very impressive and has encouraged people to look at emerging markets. I think it’s in line with a broad trend of globalisation in investors’ outlooks – people see a particular type of stock in the United States, then look at Europe then look at the rest of world." Fund managers said the new `emerging’ technology market is different frommarkets traditionally given that label. "I think it’s a slightly different profile. The Russian commodities market obviously has risks of its own… whereas with technology stocks you’re essentially taking a risk on valuation," said Rees-Mogg.

"The transition to new technology is definitely happening it’s a reality whereas people have got excited by emerging markets that have never emerged," he said. Some markets, primarily Asian countries such as Taiwan, Korea and India, are in the perfect position to benefit from the new high-tech gold rush. By basing manufacturing in China, low-cost semi-conductor producer Taiwan takes advantage of Taiwanese management and Chinese wages to keep prices down, while India is proving to be a leader in software development.

On top of which a lack of telecommunications infrastructure could ironically prove to be a plus point as emerging countries leapfrog old technology and move straight to mobile telephony.

SG Securities said in its first quarter 2000 global strategyoutlook "there is a fundamental shift to technology in Asia and a fundamental change in sectoral make-up within Global emerging markets". Other regions will benefit from the advances too.

"For Central and Eastern Europe new technology maybe won’t benefit them immediately, but in terms of technological advancement it is certainly to their benefit," said Linsey. In 1999 the IFCI Composite index rose 60 per cent, a benchmark stock index for emerging market investors, compared to an 84 percent rise in America’s tech-heavy Nasdaq index. Fund managers believe technology stocks are attracting new investors into countries that they would never traditionally have looked at.