Strategy Note /
Global

Commodities back on top of Technology in EM equities after 2 years in its shadow

  • Commodities helped by post Covid-demand, years of low capex, geopolitical disruption, renewable energy shift, inflation

  • Technology, specifically apps, hurt by China's crackdown, US-China friction, rising risk free rate amid high valuations

  • After two years of underperformance Commodities are now back on top of Technology in emerging market equities

Commodities back on top of Technology in EM equities after 2 years in its shadow
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

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Tellimer Research
21 February 2022
Published byTellimer Research

After two years of underperformance, Commodities are now back on top of Technology in emerging market equities.

Commodities have been helped by post Covid-demand recovery, years of low capex, geopolitical disruption, the renewable energy shift, and accelerating inflation. Technology, specifically applications, have been hurt by China's crackdown, US-China friction, and rising risk free rate amid high valuations.

Of course, within each group there is substantial variation, eg oil versus gold in Commodities, or Taiwan hardware versus China software applications in Tech.

Below we illustrate this claw back in performance by comparing the MSCI EM Commodity Producers index with the Emerging Markets Internet and E-commerce ETF.

Commodities claw back all of their last two-year underperformance versus Technology in EM equities

Our equity strategy view remains that stuttering global growth means that Technology, Commodities, Tourism, and Manufacturing exposure all have a place in an EM equity portfolio, with valuation relative to history offering a useful screen for country and sub-sector exposure.

The lesson from the chart above, in our view, is that it does not pay to have too religious, or restrictive, a view on sectoral allocation and that there is a need for active, as opposed to passively tracking the MSCI or FTSE EM or FM indices, portfolio management.

Related reading

Emerging market commodities hedge for developed market inflation, Feb 2022

Tech down but not out in emerging markets, Feb 2022

2022 EM equity strategy, Jan 2022