While we often associate technological innovation with Silicon Valley in the US, emerging markets tech firms are starting to challenge their rivals in the West.

According to the latest data, information technology is the second largest sector on the MSCI Emerging Markets index after financials, with a weighting of 17%. The number one and two positions on the leaderboard of biggest individual companies on the index are occupied by Chinese e-commerce giants Alibaba and Tencent.

To place the growth of the emerging markets technology space in context, in 1997 tech firms represented just 1.5% of index by market capitalisation, with areas like commodities, utilities, telecoms and infrastructure dominating instead.

However, it is also true that the representation of tech in the MSCI Emerging Markets index is down from a peak level of closer to 30% a few years ago.

Other large emerging markets tech firms include South African internet and media outfit Naspers and South Korean consumer electronics firm Samsung.

Given the technology markets in developing economies are less mature, there could be more running room for growth than in the developed world as increasing numbers of people in these countries get faster, more reliable internet connections and access to smart devices.

A World Bank report in 2018 noted: ‘Adaptation or adoption of new technologies from other countries allows companies in emerging markets to increase their productivity, better serve customer needs, reach previously underserved and unserved customers, and be more competitive.’

This outlook is part of a series being sponsored by Templeton Emerging Markets Investment Trust. For more information on the trust, visit here

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