Emerging market technology, media and telecom companies are presenting some enticing opportunities t...
Emerging market technology, media and telecom companies are presenting some enticing opportunities to fund managers on a stock-specific basis.
Venkat Chidambaram, emerging markets fund manager at Global Asset Management, has been increasing his exposure to various themes within the technology sector, anticipating undervalued strong earnings growth.
Chidambaram says: 'We have large exposure to software services companies in Israel and India and to equipment manufacturers and sub-contractors in other regions such as Singapore and Taiwan.'
He says the third quarter was widely regarded as representing the bottom in terms of demand for technology hardware and services and he has been increasing his exposure to these high beta areas in the past two months, taking advantage of the beaten-down prices.
Israel has a number of internet and computer security companies, such as Checkpoint Software, which is still growing its revenues, and, moreover, doing so off contracted P/E ratios. The story is similar in India, says Chidambaram.
He says: 'The growth rates for these companies in India year-on-year are generally between 20% and 25% and the P/Es are in the 20 to 22 region.'
Elsewhere, the outsourcing of mobile phone handsets manufactured by the likes of Motorola to companies such as Flextronics in Singapore provide opportunities as the inventory overhangs are gradually worked through.
Chidambaram says: 'There is stabilisation emerging in demand and the rate at which some of these companies such as Flextronics and Venture Manufacturing are winning new contracts is very impressive.'
Emerging market telecom companies are also providing a number of potentially strong buy opportunities, according to Aled Smith, director of global equities at M&G.
Smith has holdings in both the Republic of Korea and Mexico and is running his eye over a number of fixed line and mobile operators in Russia and some of the former Soviet bloc states.
Smith holds Korea Telecom, noting that Korea has the highest broadband penetration in the world, with some 3.5 million subscribers. As equipment costs and the decline of fixed line operations fall, he believes the stock is well positioned to benefit.
He adds that the stock is trading on a P/E of about 10, which is low relative to the sector but high relative to the Korean market.
Although telecom companies constitute a large part of the emerging market index, Chidambaram is underweight, preferring the themes stressed earlier.
While there is a natural belief that penetration is low in emerging markets, he says that investors have to get in early to avoid disappointment.
'In the beginning, it is very good but then the competition hots up, prices come down and revenue falters,' he says.
On the media side, although Smith has more than half of his fund in the sector, he is generally favouring blue-chip players from the developed markets.
'Media can be a little difficult to invest in in emerging markets because it can tend to be state-owned or influenced,' he says.
High beta sectors set to outperform.
Value available in TMT sector.
Inventory overhangs gradually eroding.
Volatility in sector remains.
Earnings visibility still opaque.
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