- May was a busy month on the earnings front and the results has have been largely positive for the first quarter of 2022, particularly for a series of China tech names. Companies such as Alibaba, Baidu and Pinduoduo (all large Chinese weights in the Index) managed to report better than expected results despite the sluggish macroeconomic backdrop created by China’s Zero Covid policy. [1]
- Outside of China, the growth of our companies continued to exhibit strong results. India-based Reliance Industries saw sales and profits rise 21% and 23% respectively driven by increasing monetization of its users. [2] Mercadolibre revenues surged another 63%, led by its fintech business, which doubled during quarter. [3] Sea Limited, the leading e-commerce company in Southeast Asia, saw sales rise 64% year over year while it continues to narrow its losses. [4]
- The e-commerce fatigue we’re seeing in developed markets hasn’t quite taken shape in the emerging markets tech realm. In fact, the growth remains resilient, driven largely by tailwinds from much lower penetration.
Please note that all performance figures are showing net data. Past performance is not indicative of future performance.
Macro Outlook
Despite an influx of volatility, the EMQQ Index managed to close up narrowly in the month of May, with a positive return of 0.68%. YTD the Index is down -27.1%. [5]
May began on tepid ground as fears of extended COVID lockdowns in China sparked another selloff of Chinese tech stocks. Towards the end of the month and early June, news turned more positive as major cities across China began relaxing restrictions. [6]
The Index also got an added boost from early signs that the regulatory crackdown on Chinese tech may be easing. Firstly, regulators in China are on the cusp of ending its cybersecurity probe for ride-hailing app Didi Global. [7] And second, regulators have recently approved over 60 mobile gaming titles after a months-long freeze in the space. [8] These are encouraging steps towards normalization, and we continue to monitor all these developments closely. (Didi Global is not a member of the EMQQ Index).
While growth for the Chinese internet industry is expected to slow this year due to strict COVID zero policies, there are signs that this is already well priced in. [9] Revenue growth in H1 2022 will be far from impressive, but we could see an acceleration in the second half of the year. Combined with a potentially softer regulatory backdrop and multi-year low valuations, the space appears to be quite advantageous.
As we’ve said before over the last few months, valuations remain on solid ground. In China, companies are still trading on heavy pessimism. The chart below tries to capture that. Cash (net of debt) accounts for an unprecedented share of value for Chinese tech companies like JD.com, Baidu and Alibaba. [10] The only leg missing is sentiment and even that is showing signs of improving.
The non-China portion of the portfolio has seen an even sharper selloff this year as the US Fed continues to raise rates. The drawdown has been swift and severe. That being said, this group of companies are now trading well below their pre-COVID valuations. This is in stark contrast to their fundamentals, which have only gotten stronger and have grown multi-fold from their levels two years ago. [11]
Volatility is likely to remain a key theme for 2022. [12] At the same time, great opportunities are arising as a result of the broader selloff. Digitization in emerging markets continues unabated. We believe the long-term growth remains intact and trailing valuations have yet to reflect that.
Source: EMQQ. Data as of 31.05.2022
Emerging Markets ETF and Index Performance (As of 31.05.2022)
|
|
1M
|
3M
|
6M
|
YTD
|
1Y
|
2Y
|
3Y
|
SI
|
|
EMQQ Emerging Markets Internet & Ecommerce UCITS ETF
|
0.42%
|
-14.15%
|
-32.67%
|
-27.51%
|
-49.82%
|
-22.66%
|
5.47%
|
-0.35%
|
|
EMQQ Emerging Markets Internet & Ecommerce Index™
|
0.49%
|
-13.77%
|
-32.23%
|
-27.12%
|
-49.04%
|
-20.75%
|
9.15%
|
4.41%
|
Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/05/2022. Performance before inception is based on back tested data. Back testing is the process of evaluating an investment strategy by applying it to historical data to simulate what the performance of such strategy would have been. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance. Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product.
Learn more about our Emerging Markets ETF