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  • Which came first, the rally in emerging markets, or the boom in its tech stocks?

  • The tech sector has become the biggest single grouping in the EM universe this year,

  • and that's for the first time since the dot-com boom.

  • Cue several, as yet, unsuccessful efforts to label EM texts with a catchy equivalent to the US FANGs

  • Facebook, Amazon, Netflix, and Google.

  • But equating the EM sector with hot US techs sells it short.

  • Hardware, as well as internet enthusiasm, is what's driving this rally.

  • Emerging market equities are enjoying their best year since 2009,

  • and the benchmark index is up 17%.

  • Earnings upgrades are the biggest driver, particularly in Asia,

  • which is 2/3 of the index and that's all of its tech stocks too.

  • Even profits of unloved Chinese groups are generally expected to rise,

  • giving Asia EM stocks one of their best-ever runs of improving profit forecasts

  • that's 12 months and counting.

  • Now that tech sector up 38% this year has led the advances.

  • Within that, the leaders include Tencent and Alibaba up 43% and 62%, respectively.

  • They're not the only beneficiaries. Samsung Electronics is up 35%,

  • and it might become the world's biggest chip maker.

  • Taiwan Semiconductor, the world's biggest chip foundry has gained 18%.

  • Combined, the 4 have added $325 billion in capitalization.

  • Tech hardware stocks are benefiting from several trends.

  • One is a perennial optimism around the rising emerging market economy's disposable income,

  • as a middle class develops.

  • Another, more specific theme,

  • is the rise in global demand for chips and other specialized components,

  • to power an increasing range of devices that we all like.

  • Now after years of consolidation,

  • supply, particularly of chips, is limited, and most of that sits in emerging Asia.

  • There's also the looming launch of Apple's iPhone 8 models.

  • Now speculation abounds as to which company has got which share of the orders.

  • About 1/3 of Taiwan's tech sales are iPhone-related according to Citigroup.

  • Yet, in spite of the rally and the hype,

  • EM techs are still cheaper than their US counterparts.

  • They're trading at 15 times earnings, compared with 18 times.

  • Now that might spur tech-lovers,

  • whether they're an internet enthusiast backing Alibaba

  • or fans of Samsung

  • to push this rally further still.

Which came first, the rally in emerging markets, or the boom in its tech stocks?

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