The increasing gravitational pull of Asian technology giants such as Samsung Electronics Co and Alibaba Group Holding Ltd (阿里巴巴) has investors concerned the group is developing the same outsized influence on emerging markets as the so-called FAANG group has been exerting on US equities.
Samsung, Alibaba, Tencent Holdings Ltd (騰訊) and Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) together accounted for 32 percent of total gains in MSCI Inc’s Emerging Markets Index this year through yesterday, data compiled by Bloomberg showed, with Alibaba and Tencent each contributing at least 9 percent.
For some, that is eerily similar to the phenomenon known as FAANG — Facebook Inc, Apple Inc, Amazon.com Inc, Netflix Inc and Google parent Alphabet Inc — stocks that have delivered 50 percent of the NASDAQ 100 Index’s gains this year.
“Fears of a major emerging-market information technology sell off do exist and are mainly derived from concerns over the US NASDAQ index,” UBS Securities strategist Geoff Dennis said in report on Tuesday. “Our US strategist is still overweight in tech, although he believes the ‘summer squall’ in the sector may have slightly further to run.”
FAANG was seemingly on every market participant’s lips last month as the NASDAQ 100 fell for the first time in eight months, including three of its biggest one-day declines this year, without much in the news to warrant any such slump.
The five big tech stocks were seen as a favorite among momentum trades that have been making a comeback even after the strategy last year suffered one of the worst years on record.
The “unusual outperformance” of growth versus value stocks for emerging markets, driven by earnings momentum in technology, is to reverse in the second half of the year, Dennis said.
Still, Tencent and Samsung remain in UBS’ top 40 picks for emerging equities, along with seven other tech companies, he said.
The Asian group is becoming more expensive, especially on a price-to-book-value basis, with a 77 percent premium to the wider index — a 15-year high, Dennis said.
That is double the long-term average premium of 38 percent, he said.
Pictet Asset Management Ltd chief strageist Luca Paolini is also worried that a correction is coming after the MSCI Emerging Markets Index’s surge, beating both the NASDAQ 100 and the MSCI All-World Index in the first half.
“If global equities do indeed witness a correction in the coming weeks, there are grounds to expect that emerging-market stocks’ out-performance will come to an end,” Paolini wrote in a report.
Paolini downgraded Pictet’s view on technology stocks to single positive from double, as earnings momentum appeared to peak in May.
He also suggested reducing holdings of emerging-market equities given the outsize technology exposure of the region relative to developed markets.
“For here and now, profit-taking in the Nasdaq and profit-taking in emerging technology as well is warranted,” said George Boubouras, chief investment officer with Contango Asset Management Ltd in Melbourne. “Quite clearly over the past 12 and 18 months, the performance of technology has been so strong and significant that to expect the same return one year forward would be an unreasonable expectation.”
BNP Paribas Asset Management's Guillermo Felices and Lydia Rangapanaiken i in a report on Tuesday also said the rally in emerging-market technology shares is “overextended” and the lender is to wait for lower prices before adding to their portfolios.
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