My colleagues and I have been championing the message that emerging markets have changed—they are no longer just commodity plays. Old economic models are undergoing a transformation in many cases, opening up exciting new investment opportunities. Here, Carlos Hardenberg, executive vice president and managing director, Templeton Emerging Markets Group, explains how the changing consumer dynamic in emerging markets has driven the demand for new and innovative goods and services.

We have found some commonly held misconceptions surrounding emerging markets that may be causing some investors to miss out on opportunities in this dynamic asset class. One of these is that commodities dominate the investment opportunities therein. A recent survey sponsored by Franklin Templeton of investors in the United Kingdom confirms this—although the myth seems to be fading a bit.1

Busting the Commodity-Only Myth

Roughly half of those who responded to the Franklin Templeton survey associated emerging markets with traditional industries such as commodities (56%) and manufacturing (50%). Meanwhile, 42% associated information technology with them.2

While misconceptions seem to persist, the reality is that many emerging-market economies have expanded their scope—so we are glad to see investors begin to acknowledge this. Emerging markets are no longer one-dimensional. We are seeing the cultivation of a new generation of innovative companies located in emerging markets—diversifying emerging-market economies and the opportunities for investors.

At the same time, the emerging-market middle class has been on the rise. Greater consumer spending power has driven local companies to meet the demand for newer types of goods and services. We think this trend will likely continue to drive emerging-market growth and innovation.

In fact, technology is now one of the largest sectors in the MSCI Emerging Markets Index, as you can see in the charts below.3

The technology sector as a whole has changed the way we live. Back in 1982, the patent for the world’s first commercial compact disc (CD) player was snapped up in the United States and each disk retailed for about US$14. Now, with the likes of cloud technology, users can access millions of songs for even less—and with no physical record or disk required.