Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 253

Five reasons why emerging markets lead tech

Emerging markets are at the forefront of global technology growth. Many emerging market tech companies are the most innovative and fastest growing in the world, driven by young, increasingly affluent and tech-savvy populations. The MSCI Emerging Market Index now has the largest technology weighting of any global index, with its share rising from 13% at the end of 2010 to 28% by the end of January 2018.

Here are five key reasons why emerging markets leads the tech revolution:

1. Huge appetite for tech

The sheer size of populations in emerging markets is itself an opportunity. While internet-user growth has been blistering, there’s still plenty of room for expansion. China’s 730 million online population is larger than that of the European Union and US combined but represents only half of the country.

A significant percentage of the ‘unconnected’ in China and other emerging markets like India, Brazil and Russia are urban dwellers (see chart below), which means they can be added relatively fast and cheaply. The youthful demographic profiles of many emerging markets are a real tailwind for technology, given faster adoption and creativity that characterises younger generations.

2. Power of the mobile phone

A large proportion of the population in emerging markets is accessing the internet via smartphones, and this has spurred phenomenal innovation. China’s Tencent, for example, has built a whole content-driven social-networking ecosystem through mobile internet. This includes e-finance, e-commerce, ad-platforms, online-to-offline services, travel and mobile gaming – effectively making it a Facebook, PayPal, WhatsApp, and Amazon all rolled into one. US companies may have spearheaded personal computer internet services, but emerging market tech firms are leading the mobile internet revolution.

3. Taking the lead in FinTech

FinTech – the fusion of finance and technology – is a prime example of an area where emerging markets are outpacing their developed counterparts by some margin. This is assisted in no small measure by the mobile revolution, but also broader efforts to improve financial inclusion. Whether it be money transfer & payments, savings & investments, insurance or borrowing, emerging markets exhibit more enthusiastic use of FinTech than elsewhere.

Emerging market financial institutions have also been quick to embrace technology, making them world leaders in the use of electronic distribution channels. The bank with the largest Twitter following in the world is not of developed-world provenance, but India’s Yes Bank.

4. Governments are on board

Emerging market governments are keen to use technology to increase efficiencies and reduce cost. What’s more, demographic pressures have forced governments to focus on their young and increasingly affluent populations. This rise in income and social mobility is most starkly illustrated in Asia, where the Brookings Institute estimates that over two billion people will join the middle class by 2030.

A focus on education and innovation has also helped some emerging markets steal a march on developed market competitors. In Bloomberg’s latest index of the world’s most innovative countries, South Korea again led the field, topping the international charts in Research & Development intensity, value-added manufacturing and patent activity, and with top-five rankings in high-tech density, higher education, and researcher concentration.

Source: Bloomberg, International Labour Organisation, International Monetary Fund, World Bank, Organisation for Economic Co-operation and Development, World International Property Organisation, Jan 2018.

5. Emerging market tech titans

Emerging markets today boast world-class technology firms in both the hardware and software space. Chinese names like e-commerce giants Alibaba and Tencent have built huge footprints domestically (note that in China, US tech giants like Facebook, Amazon, and Google are peripheral players in their respective areas of social media, e-commerce, and search engines).

Both Alibaba and Tencent are now extending their coverage across Asia. Armed with Asia-centric games, social networking, and e-commerce platforms, we believe they will give the formerly dominant US names very tough competition. Meanwhile, other emerging market tech firms, like colossus chip-maker Taiwan Semiconductor, are central players in global supply chains – providing components for major brands like Apple.

Emerging markets – the new destination for tech exposure

Rather than catching up, emerging markets are now taking the lead in a whole raft of different areas of technology. With plenty of untapped growth left, and the highest-quality firms widening their competitive moats, we believe this area presents some of the most attractive long-term opportunities for investors.

 

Kim Catechis is Head of Emerging Markets at Martin Currie, a Legg Mason affiliate. Legg Mason is a sponsor of Cuffelinks.

RELATED ARTICLES

The markets to gain most from US rate cuts

Is India the world's best growth story?

10 trends reshaping the future of emerging markets

banner

Most viewed in recent weeks

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

Are franking credits hurting Australia’s economy?

Business investment and per capita GDP have languished over the past decade and the Labor Government is conducting inquiries to find out why. Franking credits should be part of the debate about our stalling economy.

Here's what should replace the $3 million super tax

With Div. 296 looming, is there a smarter way to tax superannuation? This proposes a fairer, income-linked alternative that respects compounding, ensures predictability, and avoids taxing unrealised capital gains. 

Latest Updates

Investment strategies

9 winning investment strategies

There are many ways to invest in stocks, but some strategies are more effective than others. Here are nine tried and tested investment approaches - choosing one of these can improve your chances of reaching your financial goals.

Planning

Super, death and taxes – time to rethink your estate plans?

The $3 million super tax has many rethinking their super strategies, especially issues of wealth transfer on death. This reviews the taxes on super benefits and offers investment alternatives.

Taxation

Raising the GST to 15%

Treasurer Jim Chalmers aims to tackle tax reform but faces challenges. Previous reviews struggled due to political sensitivities, highlighting the need for comprehensive and politically feasible change.

Shares

The megatrend you simply cannot ignore

Markets are reassessing the impact of AI, with initial euphoria giving way to growing scepticism. This shift is evident in the performance of ASX-listed AI beneficiaries, creating potential opportunities.

Gold

Is this the real reason for gold's surge past $3,000?

Concerns over the US fiscal position seem to have overtaken geopolitics and interest rates as the biggest tailwind for gold prices. Even if a debt crisis doesn't seem likely, there could be more support on the way.

Exchange traded products

Is now the time to invest in small caps?

With further RBA rate cuts forecast this year, small caps may be key beneficiaries. There are quality small cap LICs and LITs trading at discounts to net assets, offering opportunities for astute investors.

Strategy

Welcome to the grey war

Forget speculation about a future US-China conflict - it's already happening. Through cyberwarfare and propaganda, China is waging a grey war designed to weaken democracies without firing a single shot.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.