Asia technology surge shields Emerging Market assets

Tuesday, July 25, 2017

Subject

Surge in trading Asian technology stocks drives EM rally.

Significance

Technology stocks have driven Emerging Market (EM) equity prices so far this year after replacing commodities shares in late-2014 as the heaviest weighting in the Morgan Stanley Capital Investment (MSCI) EM index. While the index is up 23% so far this year, its technology sub-component, dominated by Asian listings, has risen by more than 40%.

Impacts

  • The dollar index has lost more than 8% this year, benefiting EM currencies and local government debt, and is set to remain under pressure.
  • The Vix index, Wall Street’s ‘fear gauge’, stands just above its record low but it could reverse suddenly, decimating returns on assets.
  • Stronger goods trade has driven the Asian hardware rally, but rising worldwide protectionism may chip away at the trade recovery.
  • Asian technology firms dominate in hardware but diversifying into software against Facebook, Amazon, Netflix and Google may prove difficult.
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