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Every year in June, a report is published that is essential reading for anyone interested in investing in the tech sector. Written by the woman dubbed the ‘Queen of the Internet’, Bond Capital founder Mary Meeker, the Internet Trends Report has become the most highly anticipated slide deck in Silicon Valley due to its ability to recognise the most important statistics and technology trends in the interconnected world of today. For investors, the report provides fascinating insights into the expanding world of tech, and as a result, where and in which markets the biggest growth opportunities lie.
The first slide from Meeker’s report that jumps out is that, for the first time in history, the percentage of the global population using the internet has passed 50%1. Along with that statistic, however, comes the point that growth has slowed (+6% vs. +7% Year on Year2). Meeker concludes that “growth is becoming harder to find…” but the “Asia Pacific leads in users and potential.”3
Internet Penetration, 2018
Source: Internet Trends Report, Slide 9
The reason Asia Pacific looks so promising for future growth is that, while it has 53% of global internet users, there is only 48% internet penetration in the region (see table below). By contrast, 89% of the US population is online.
Internet Users by Region, 2018
Source: Investment Trends Report, Slide 10
It is not only the relative lack of penetration the internet has in Asia that is attractive, but also the rate of growth in market cap of some of its biggest tech companies:
- Tencent’s market cap increased 93% from US$206 billion to US$398 billion (July 2016 to July 2019).
- Alibaba’s market cap increased 106% from US$195 billion to US$402 billion (July 2016 to July 2019)4
To gain cost-effective exposure to a diversified portfolio of technology companies based in Asia, including Tencent and Alibaba, investors can consider the Asia Technology Tigers ETF (ASX: ASIA). ASIA provides exposure to the 50 largest technology and online retail companies by market capitalisation, that have their main area of business in Asia (excluding Japan).
Latin America is coming online
It’s not just Asian markets where Meeker cites potential for technological growth, but also other developing markets around the world.
As referenced in the chart above, internet penetration rates are at only 62% in Latin America. Demonstrating the potential for growth is Argentinian company Mercado Libre, which is in the top 30 internet companies in the world by market cap, with a market value of US$30 billion, up 388% from the previous year5.
E-Commerce-driven digital payments in Latin America have grown exponentially. Nubank, the largest fintech in Latin America, tripled its unique customers in Brazil in one year, while Mercado Libre last year processed a record number of payments – 389 million transactions, which is also up around 200% in two years6.
Source: Internet Trends Report, Slide 68/69
Emerging markets companies are among those at the forefront of the global tech revolution. The recently-launched BetaShares Legg Mason Emerging Markets Fund (managed fund) (ASX: EMMG), managed by Legg Mason affiliate Martin Currie, is an effective way to tap into the growth opportunity emerging markets offer. The fund holds an actively managed, high-conviction portfolio of carefully-selected emerging market companies* (being technology focussed or otherwise).
The significant returns the tech sector has provided in recent years may not be as easy to achieve in the future. Investors likely will require a more tailored approach to their tech investments, focusing on opportunities that offer the best prospects for growth.
Asia’s growth prospects remain strong, with its domestic technological companies finding a high place on the ladder that is currently dominated by North America’s tech juggernauts. Asian tech opportunities can be accessed through the Asia Technology Tigers ETF (ASX: ASIA).
Identifying market trends is important, with the tech sector in particular having very low barriers to entry and the tendency for change to occur rapidly in the space. BetaShares Legg Mason Emerging Markets Fund (managed fund) (ASX: EMMG) provides exposure to a carefully-screened selection of companies in emerging markets, some of which are fast integrating themselves into the ‘internet of things.’
Then again, if it’s the US tech juggernauts you want exposure to, you could always look at the NASDAQ 100 ETF (ASX: NDQ).
* EMMG is an Active ETF and consequently its exposure to the tech sector will vary over time.
1. Meeker, M (2019), Internet Trends Report. Slide 9
2. Meeker, M (2019), Internet Trends Report. Slide 7
3. Meeker, M (2019), Internet Trends Report. Slide 10
4. Meeker, M (2019), Internet Trends Report. Slide 12
5. Meeker, M (2019), Internet Trends Report. Slide 12
6. Meeker, M (2019), Internet Trends Report. Slide 69