Emerging and Frontier Markets Monthly Report | August

Emerging and Frontier Markets Monthly Report: Key Takeaways

The EMQQ Index was down -5.49% in July and the 2022 year to date return was -28.81% at the end of month. While sentiment remains terrible, we continue to emphasize that we stand on two solid legs: current valuations are low and long-term growth rates look very promising. While It's impossible to tell when sentiment will shift, we believe that the multi-decade growth story for the emerging markets internet space remains intact. [1]

While a majority of EMQQ companies have yet to release their second quarter financials, a few bellwether companies In the Index have. Alibaba reported results that beat analyst overly bearish estimates. While growth was flat YoY due to a sluggish Chinese economy dampened by COVID lockdowns, management did stress they have seen a recovery in the later part of the quarter as user activity picked up and supply constraints eased. [2]

Meanwhile In Latin America, Mercadolibre continues to go from strength to strength as Its sales climb 53% while keeping margins steady. In Brazil, the company's largest market, MELI managed to gain market share while also reporting its first profitable quarter in Mexico since entering the market over five years ago. In addition to that, the company’s fintech unit again boasted impressive growth as it continues to deepen Its product suite. [3]

Coupang, the South Korean e-commerce giant, raised Its earnings forecast for 2022 after it substantially narrowed Its losses as higher monthly memberships fees and improved operational efficiency helped to boost profitability. The company now expects to EBITDA positive this year compared with an earlier projection for a $400 million loss. [4]

Please note that all performance figures are showing net data. Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.

Macro Outlook

As we've emphasized over previous monthly write ups, we believe that valuations across the EMQQ Global portfolios remain very attractive. On a Forward P/E basis, the EMQQ index hasn't been this cheap in at least five years. Several companies across the portfolio are now trading at levels well below their valuations prior to the onset of COVID In 2020. In response, several large companies, especially those In China have responded with record buybacks, signalling long-term confidence in their businesses. [5]

Furthermore, the valuation gap between emerging markets and developed markets continues to widen. Below is a graph comparing the forward price to earnings ratios of the S&P Index vs the MSCI EM Index. On this commonly used metric, the gap between U.S. and Emerging Markets hasn’t this wide since the early part of the 2000’s. While making short-term stock market predictions is rather futile, the valuations in EM haven’t been this attractive in over a decade relative to other developed markets. [6]

We’ve prepared a more in-depth piece outlining valuations across the portfolio. To get a copy, again please kindly reach out to a member of the team.

All performance figures are showing net data. Please remember that past performance is not indicative of future performance, and when you invest in ETFs, your capital is at risk.

EMQQ GOES: Latin America Research Report

In March we began our EMQQ GOES effort in Latin America. Our plan is to visit all 46 Emerging and Frontier Markets to meet the founders, investors, employees, and customers that make up the EMQQ ecosystem.

Latin America seemed like a great starting point due to its proximity with the U.S. and its stage of development in the EMQQ story. We met with several portfolio including Mercado Libre (NASDAQ: MELI), XP, Inc. (NYSE: XP), D Local (NYSE: DLO), Nubank (NYSE: NU).

We (finally) did a webinar about our trip last month. A replay is available here. To get a copy of our written report and findings from the trip, please reach out to a member of the team.

 Emerging Markets ETF and Index Performance (As of 31.07.2022)

 Frontier Markets ETF and Index Performance (As of 31.07.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/07/2022. 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 

Learn more about our Frontier Markets ETF