Emerging Markets Internet Speeds Ahead

The increase in mobile internet speed has largely driven emerging markets’ embrace of technology. Back in 1995, the 2G standard set a leisurely pace, fast enough for texting and little more. Three-G enabled graphics to enrich the content, 4G enabled smartphone video, and 5G promises to accelerate communication among interconnected devices.

As internet capabilities increased and migrated to smartphones—and as the cost of smartphones came down with the introduction of open-source Android software—emerging markets consumers embraced the internet and adopted smartphones in overwhelming numbers. China alone had half-a-billion mobile internet users by 2013—a number that has since grown to 812 million.i As the user base spread out, the focus on innovation intensified. Today China is leading the world in adopting 5G technology. In 2020 as the developed world awaits the arrival of the advanced networks and speculates on the changes it will bring about, they will be broadly operational in China (see chart).

China is Leading the World in Adopting 5G Technology

As of 2019

Source: Morgan Stanley

Technology assumed its dominant position in the emerging markets index so quickly because technology in the emerging markets had nothing to overtake and disrupt—no shopping malls, no credit cards, very little by way of formal education systems or professional sports, and no easy means to get from one place to another in its sprawling cities. Ecommerce—the virtual shopping mall—since the introduction of the Android smartphone in 2009 has grown to top $1 trillion, or about twice as large as the comparable figure for the United States. And the gross merchandise value of the goods moved by the largest emerging markets online merchant, Alibaba, exceeds Amazon’s turnover by a factor of five.

Even with all that growth the internet merchants have only scratched the surface. They have focused their efforts to date on the largest cities, leaving the secondary metropolises largely untouched. Yet residents of these secondary cities rely on the internet as much as their big-city counterparts and in China alone they have a combined purchasing power amounting to $2.3 trillion, a number that forecasters project to triple over the next 10 years.2

At the same time as they are extending their markets outside the big cities, the internet merchants are expanding their offerings. They have moved past goods into services as diverse as insurance and food delivery. The market is large and growing in China’s largest cities, and the demand for such hallmarks of urban life is evident in the smaller metros. Moreover, such services have provided the Chinese internet giants a vehicle for overseas expansion. Alibaba and Naspers, the South African holding company that holds a large stake in Alibaba’s biggest domestic competitor, Tencent, back the two dominant food delivery concerns in India. Together they control better than a 90% share of one of the fastest-growing categories in Indian ecommerce.

The preceding is an excerpt from Emerging Markets: The World’s Innovation Lab. Read the full paper.

Important Information

This content represents the views of the author(s), and its conclusions may vary from those held elsewhere within Lazard Asset Management. Lazard is committed to giving our investment professionals the autonomy to develop their own investment views, which are informed by a robust exchange of ideas throughout the firm.

This document reflects the views of Lazard Asset Management LLC or its affiliates ("Lazard”) based upon information believed to be reliable as of the publication date. There is no guarantee that any forecast or opinion will be realized. This document is provided by Lazard Asset Management LLC or its affiliates ("Lazard”) for informational purposes only. Nothing herein constitutes investment advice or a recommendation relating to any security, commodity, derivative, investment management service, or investment product. Investments in securities, derivatives, and commodities involve risk, will fluctuate in price, and may result in losses. Certain assets held in Lazard’s investment portfolios, in particular alternative investment portfolios, can involve high degrees of risk and volatility when compared to other assets. Similarly, certain assets held in Lazard’s investment portfolios may trade in less liquid or efficient markets, which can affect investment performance. Past performance does not guarantee future results. The views expressed herein are subject to change, and may differ from the views of other Lazard investment professionals.

This document is only intended for persons resident in jurisdictions where its distribution or availability is consistent with local laws or regulations. Please visit www.lazardassetmanagement.com/global-disclosure for the specific Lazard entities that have issued this document and the scope of their authorized activities.

The MSCI Emerging Markets Index is a free-float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The MSCI Emerging Markets Index consists of 24 emerging markets country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. The index is unmanaged and has no fees. One cannot invest directly in an index.

Certain information included herein is derived by Lazard in part from an MSCI index or indices (the “Index Data”). However, MSCI has not reviewed this product or report, and does not endorse or express any opinion regarding this product or report or any analysis or other information contained herein or the author or source of any such information or analysis. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any Index Data or data derived therefrom.

© Lazard Asset Management

i Source: Morgan Stanley

Read more commentaries by Lazard Asset Management