Information technology (IT) has replaced commodities as the driving force behind emerging economies such as China, Taiwan and South Korea, with companies including Chinese internet search engine Baidu (US:BIDU) and e-commerce company Alibaba (US:BABA) generating stellar returns for emerging markets funds. In the year to date MSCI Emerging Markets index has risen 18.3 per cent and had its best first quarter since 2012. And the IT stocks in MSCI Emerging Markets index have gone up even more in the year to date, having increased by 35.7 per cent, while in 2016 they rose by nearly 40 per cent.
"A lot has been written about how influential the big American technology names have been at driving indices higher in the US and the same phenomenon has been taking place in emerging markets,” says Rob Morgan, pensions and investments analyst at Charles Stanley. "A handful of companies have become increasingly dominant in the index, for example, Chinese ecommerce companies JD.com (US:JDQ) and Alibaba, South African internet and media company Naspers (JNB:NPN) and Chinese internet company Tencent (HKG:700)."
The internet technology sector accounts for 26.6 per cent of MSCI Emerging Markets index, up from 12 per cent in 2007.