Emerging and Frontier Markets Monthly Report | September

Emerging and Frontier Markets Monthly Report: Key Takeaways

The EMQQ Index climbed 3.7% In August with the top 5 contributors all coming from China, including Pinduoduo (+3.7%), KE Holdings (+45.5%), Meituan (+35.5%), Tencent (+7.7%) and Alibaba (+6.7%). [1]

Chinese tech stocks got a boost after the SEC struck a deal with its Chinese counterparts to tackle one of the biggest overhangs in the space: the ADR delisting issue. Both sides came to an agreement to allow U.S. regulators to audit the records of Chinese companies listed In New York. While this is only the first step in potentially resolving the dispute, it is a key one. We discuss further below.

Meanwhile on a macro level, China continues to take several measures to help bolster the economy against a backdrop of COVID Zero policies and the lockdowns ensuing from it.

India continues to go from strength to strength. It recently surpassed the United Kingdom to become the fifth largest economy in the world. These positive developments are likely not to be short term as McKinsey recently emphasized that this will not only be India's decade, but its century. [2]

We also briefly tackle the strong US dollar and implications for emerging markets while finally discussing projections for global e-commerce growth in coming years.

For a more in-depth piece on the current state of valuations, please kindly reach out to a member of the sales team.

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.

China Delisting – A Step in the Right Direction

Beijing and Washington have reached a preliminary deal to allow American officials to review audit documents of Chinese businesses that trade in the US, a first step toward avoiding the delisting of about 200 firms from New York exchanges. American inspectors plan to be on the ground by mid-September to begin the process.[3] This will go a long way to helping mitigate a key overhang in the space.

We’ve long maintained that the delisting risk of Chinese ADRs trading in the US is relatively low. The SEC and their Chinese counterparts have historically disagreed on how the papers of Chinese companies trading in the US should be audited as the latter have expressed concerns around privacy. The two sides, however, have continuously engaged in constructive talks over last year on how to negotiate around and settle their differences. As of August, both the SEC and their Chinese counterpart, the CSRC, have struck an agreement that will allow American officials to review audit documents of Chinese firms trading in the U.S.[4] While this is only the first step, it is an important one that signals both sides want to resolve this issue.

China Macro – Government Steps Up Stimulus

While China's strict COVID Zero policies and lockdowns have dampened economic growth this year, the government is taking several measures to stymie the impact. Officials have stepped up its economic stimulus with a further 1 trillion yuan ($146 billion) of funding largely focused on infrastructure spending.[5] Another $29 billion of special loans will be divvied out to support the real estate sector and ensure stalled housing projects are delivered to buyers.[6] Meanwhile the People's Bank of China has trimmed interest rates multiple times this year, which stands in stark contrast to the rest of the world of financial tightening.[7] While lockdowns will likely continue in the short-term, the Chinese government does appear to have the policy tools and firepower in place to help buoy the economy until a softer COVID strategy Is potentially adopted.

India Rising

In other news, it was recently announced that India has now surpassed the United Kingdom to become the world's fifth largest economy according to estimates from the IMF.[8] These gains are likely to continue as the country's GDP is expected to jump over 7% In 2022, making it one of the fastest growing major economies this year. The South Asian nation country of over 1.3 billion people is on pace to become the third largest economy by the end of the decade according to forecasters.

Others are excited on an even longer time frame. McKinsey CEO Bob Sternfels went on record that this not only India's decade, but Its century. The global consulting firm Is excited by the country's young demographics, Its talented workforce, potential for expertise manufacturing and its digital transformation. We share In McKinsey’s enthusiasm as India Is poised to be one of most exciting internet markets in the near future.

Macro Outlook

Worldwide e-commerce sales are expected to top $5 trillion for the first time in 2022, according to research from Insider Intelligence.[9] That number Is expected to swell to $7 trillion by 2025 suggesting that the scale of global e-commerce growth should remain robust in coming years.

Encouragingly, most of the fastest growing e-commerce will include many of those from the EMQQ Index, especially those in Southeast Asia and Latin America. The Philippines Is projected to have the highest e-commerce sales growth in 2022 at 25.9%, followed by India (25.5%), Indonesia (23%), Brazil (22%) and Vietnam (19%). Countries In Latam are projected to boost their ecommerce sales in the double digits each year until 2025. [10]

While short term market sentiment remains poor, longer-term growth themes remain structurally Intact.

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.

Chart of the Month

The US Dollar has recently hit a 20 year high against a basket of foreign currencies. While the dollar could still grind higher, any downward movement from these elevated levels could help support emerging market equities.

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.

Other Research Content

We’ve prepared a more in-depth piece outlining valuations across the portfolio as well as a longer research paper exploring the team's recent trip to Latin America. To get copies, please reach out to a member of the sales team.

 Emerging Markets ETF and Index Performance (As of 31.08.2022)

 Frontier Markets ETF and Index Performance (As of 31.08.2022)

Please note that all performance figures are showing net data. Source: Bloomberg / HANetf. Data as of 31/08/2022. 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