Chinese technology sector valuations attractive despite rally, says Franklin Templeton
Asset manager favours mainland e-commerce firms because of their global expansion potential
Franklin Templeton Investments is confident about the Chinese technology sector despite a strong rally, as valuations remained attractive and the industry was only just starting to develop, the global asset manager said on Tuesday.
Traditionally, emerging economies have relied on increases in population and export of resources for economic growth, but technological developments mean these countries can now catch up with developed economies at a much faster pace, said Eric Mok, senior vice-president and portfolio manager at Templeton Emerging Markets Group, a part of Franklin Templeton.
“At this point, valuations of many big e-commerce [companies] are not expensive,” Mok said in Hong Kong. “Nobody has dominated the Southeast Asian or African emerging markets yet, so this opportunity is likely to be reflected in their valuations.”
Mok said China has the biggest number of internet users at 721.4 million, followed by India at 462.1 million and the United States in third place, with 286.9 million users.
The US-based company said it prefers Chinese companies related to e-commerce, cloud computing and digital payments given the opportunities for these to expand abroad – which they have done so, in Southeast Asia and potentially also into African emerging markets.
The price-to-earnings ratio of the MSCI China Index based on earnings of the past 12 months was at 16.3, much lower than the MSCI World Index’s 20.8 . But the weight of the IT sub-sector of the MSCI Emerging Markets index rose to about 27 per cent in 2017 from about 23 per cent in 2016, and from less than 10 per cent in 2007.