Tech Jitters Hit Emerging-Market Stocks at Record Valuations

(Bloomberg) -- Surging valuations for emerging-market technology shares are giving some investors pause.

Growth stocks are the most expensive in more than a decade relative to so-called value equities after a runup in companies including Weibo Corp. and Samsung Electronics Co. this year on the back of soaring global demand for equities tied to technology. For Joseph Gubler, a portfolio manager at Causeway Capital Management in Los Angeles, that means he’s shifting into less conspicuous names such as SK Hynix Inc. and NetEase Inc. to escape the staggering valuations of technology titans like Alibaba Group Holding Ltd.

"We’re looking at stocks with positive sentiment and potential growth that are still not extremely overvalued," Gubler said.

Investors are increasingly on edge about historically high equity valuations. The benchmark U.S. technology index posted a sudden drop Thursday during a convulsion of selling that followed an ominous note from a JPMorgan Chase & Co. derivatives strategist who said the market’s volatility drought could presage protracted pain. While most of the hand wringing has been focused on U.S. giants such as Facebook Inc. and Amazon.com Inc., emerging-market shares in the sector are also looking vulnerable.

Current valuations for developing-nation technology stocks are no longer justified, according to Alejandro Baez-Sacasa, an equity manager and co-founder of Neon Liberty Capital Management. He said value stocks are due for a rally as the gap shrinks.

Growth stocks’ price relative to forecast earnings are at the highest on record, with the ratio almost 2 standard deviations above the 10-year average, according to data on the MSCI Emerging Market Growth Index compiled by Bloomberg.

In the broader emerging-market index, the five biggest contributors to the gauge’s advance this year are technology shares. Combined, Tencent Holdings Ltd., Alibaba, Samsung, Taiwan Semiconductor Manufacturing Co. and Naspers Ltd. have accounted for more than half the index’s gain.

The MSCI Emerging Markets Information Technology Index dropped 1 percent on Friday.

--With assistance from Carlos Torres

To contact the reporter on this story: Maria Jose Valero in New York at mvalero3@bloomberg.net.

To contact the editors responsible for this story: Rita Nazareth at rnazareth@bloomberg.net, Jeremy Herron at jherron8@bloomberg.net, Brendan Walsh