The current wave of surge in technology sector stocks is primarily due to the growing buzz around generative AI, cloud computing, and advanced software. Rob Mumford, Investment Manager from GAM’s Emerging Markets (EM) Equity Team discusses the factors at play and identifies the trends in the EM tech sector.

GAM Investments highlighted that the digital progression from information to actual intelligence is fuelled by a combination of software and hardware advances, where emerging market Asia has a critical role.

Mumford speaks about Digital 4.0 or the next phase of digitisation powered by new applications incorporating cloud, AI, edge technology, and a maturing metaverse with many years to run. He said, “EM technology is the second biggest sector in the MSCI Emerging Market Index (at 21.2%, just a touch below financials at 21.9%) and we expect new and existing constituents to play a key role in Digital 4.0 given EM’s dominant role in several areas.” Mumford also talks about the positive top-down impact of technological advances.

According to GAM, Nvidia’s upward revised guidance revealed how secular advances in technology have a major impact on several sectors including the associated supply chain. Further, Mumford points out the huge technology requirement not just for Chat GPT but also Digital 4.0. Massive demand for chips is expected for electric vehicles and autonomous driving in the future. “EM and Asian companies have significant exposure in these areas and have a dominant role in a number of segments,” says the asset manager. Mumford also confirms that the market share in broader packaging and testing is dominated by Asia with more than a 50% market share.

China has several exciting opportunities across verticals including home growth office, enterprise resource planning (ERP), and cyber security, as per GAM. The asset manager also added some advice as it stated, “We do think investors should be cautious given some strong moves to date, current valuations, the cyclical backdrop of technology (which remains difficult) and also the fact some AI-related products may only account for a small percentage of companies’ current business products (though in general, these products are growing the fastest).”

Read the full insight here.