China is big enough to be a tech story all of its own. It currently accounts for around one-third of the tech market, and over the longer term, there is still plenty of room for growth in both China’s domestic consumer tech market and its global ambitions. According to the latest figures from the World Bank, the country has seen extraordinary growth in the percentage of the population using the internet, from about 8% in 2005 to just over 50% in 2016. That still sharply lags the US’ 76% and the UK at 95%, providing some measure of potential growth2.

    Technology’s subsectors are already splitting to provide differentiated performance for software and services (the highest performing sub-set, information technology, semi-conductors and equipment and hardware). We may also see investors differentiate between technology users and technology developers within the sector. After all, while Netflix uses the internet to distribute content, the company is not building new technologies to stream movies. No-one insists that an airline is a tech firm simply because you buy seats online.

    Historically investors have favoured consumer staples to ride through an economic downturn.  As innovation matures, technology companies are so deeply embedded in our lives that they more closely resemble a traditional return on capital investment than a bet on growth. Think of a product such as Apple’s iPhone, which consumers now see as staple in its own right.

    The evolution of the internet has gone through three phases of innovation. Starting with a focus on content it then delivered services, followed by the rise of social media companies and interaction between people. In the next stage, the so-called “internet-of-things” will see machines learn to talk to one another and artificial intelligence increasingly intervene between people and their wider world, opening new avenues of growth for the most nimble firms and investors.

    1 Source: Ned Davis Research, data as of 29 June 2018
    2 https://data.worldbank.org/indicator/IT.NET.USER.ZS?end=2016&locations=CN-US-GB&start=2001&view=chart