FANGs versus emerging market tech stocks
We’re increasingly seeing a lot of investors comparing the US-based FANG stocks to other technology stocks from emerging markets. The FANG stocks comprise the top four technology companies in the US. FANGs is an abbreviation representing Facebook Inc. (FB), Amazon (AMZN), Netflix Inc. (NFLX) and Google (GOOG) parent Alphabet Inc.
Valuations seem to side with the EM tech stocks, as also pointed out by Mark Mobius during his interview with Bloomberg. Mark Mobius, widely known as an emerging markets guru, is the executive chairman of Templeton Emerging Markets Group. Mobius pointed to the attractiveness of these EM tech stocks as compared to similar companies in the US or the Europe. “They’re a lot cheaper to them,” he said.
30% cheaper compared to US tech stocks
The chart above compares the forward valuations (price-to-earnings ratio) for the Dow Jones Composite Internet Index (FDN) to the Dow Jones Emerging Markets Technology Titans 30 Index (QGEM). The Dow Jones Composite Internet Index tracks the performance of the 40 largest and most actively traded stocks of U.S. companies in the Internet industry, including the FANGs. The Dow Jones Emerging Markets Technology Titans 30 Index (QGEM), on the other hand, tracks the stock performance of 30 leading emerging market companies in the technology sector. Quite evidently, valuations for the emerging market tech stocks (AAIT) (CQQQ) are at least over 35% cheaper as compared to US tech stocks.
| Company (US Ticker) | 1-Year Price Return (as of July 5) | Country of Domicile |
| Alibaba Group Holdings (BABA) | 76.67% | China |
| Samsung Electronics (SSNLF) | 60% | South Korea |
| Tencent Holdings (TCEHY) | 56.9% | China |
| Taiwan Semiconductor Manufacturing (TSM) | 40.9% | Taiwan |
| Naspers (NPSNY) | 37.8% | South Africa |
EM tech stocks are up 35%-77% over the past year
While valuations for emerging market tech stocks are currently quite distant from the more popular US-based technology giants (XLK), investors are also becoming skeptical about how much longer the EM tech stocks will continue to remain attractive. Mobius, however, expects valuations for EM tech stocks to remain attractive. He urges investors to look at earnings growth in these companies. “Their earnings are increasing, so they would be able to justify the rising P/E ratios, going forward,” was Mobius’ advice to investors with their money in these stocks. These stocks have been rallying for some time now, and so rising P/E ratios for these stocks are giving pause to investors. Over the past year alone, a few of these stocks have recorded price growth ranging from 35% to 77% (see table above). Technology stocks have accounted for almost a third of the emerging market index’s rise so far this year.
