Emerging Markets Internet and Ecommerce Monthly Report | June

• The Internet & Ecommerce sector will continue to be a net beneficiary of shifting consumer behaviour brought on by COVID-19
• The Emerging Markets and Ecommerce UCITS ETF (EMQQ) continues to hold the #1 spot for all EM ETF’s for YTD and 1yr performance according to ETFdb.com as of June 1.
• The secular trends of billions of consumers in EM shifting towards more digitised lifestyles has only accelerated and will stabilise at a much higher level on the other side as seen by the strong revenue growth reported in the latest earnings
• The U.S. legislation targeting Chinese listings and auditing oversight has caused investor confusion and pushed the phase one trade agreement into question. Ultimately the state-owned listings could be in jeopardy, of which EMQQ holds none.
• U.S. China relations continue to deteriorate and with the November election rapidly approaching, expect it to degrade further

Performance Review

Monthly Performance of EMQQ vs iShares MSCI Emerging Markets ETF

• May: 13.86% / 2.97%
• April: 11.39% / 7.35%
• March: -7.92% / -15.77%
• Feb: -2.81% / -3.78% 

The Emerging Markets and Ecommerce UCITS ETF (EMQQ) has continued to rebound strongly from the recent lows in mid-March. After the initial reactions to the pandemic sunk in, the realisation struck that a stark divergence was taking place between business models representing the legacy brick and mortar economy, and the new age fully digitised and mobile economy. With EMQQ best positioned to ride this rapid shift, performance has followed as we’ve consolidated our lead as the best performing Emerging Market ETF over the YTD and 1yr period according to ETFdb.

Leading EMQQ’s strong performance for the month and year to date, has come from the Latin American leader in Ecommerce and Argentinian based Mercadolibre (MELI). After posting a return of over 45% for the month of May (1), MELI rose to be the largest weighting in EMQQ at the end of the month.

With the virus continuing to spread in Brazil and elsewhere in Central and South America, a key EMQQ holding,MercadoLibre, (MELI) has disproportionately benefited over competitors due to its more robust supply chains and logistics management that’s been capable of meeting the tremendous surge of demand. Mercadolibre also represents how themacro conditions that continue to drive China’s digitisation, are also being felt throughout developing economies, but offering the possibility of even greater upside as they come off a much lower base and much earlier in their digitisation cycle. In the Latin American region, only 34% of consumers under the age of 15 buy goods online, compared to the 74% in the UK and just over 60% in China.(2) This adoption gap is closing fast however as the virus has created an extra incentive and catalysing growth. After reporting to register 1.7 million new customers for the month alone, MELI COO, Stelleo Tolda proclaimed on his last earnings call that they are at a “point of no return” and “digitisation will stabilise at a much higher level”.

Source: Bloomberg, June 1, 2020 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.

Industry News

Digitisation Stabilising at a Higher Level:

With the pandemic driving consumer behaviour online at an accelerated rate, demographics and regions that have remained slow or even resistant to adopting a more digitised lifestyle seem to have relented and started to convert. In Latin America, where online retail sales only account for 5% of total sales, is expected to surge to 25% in one decade according to a recent HSBC study.

Rajiv Jain, one of the HSBC analysts even proclaimed, “Covid-19 could do to Latin America what SARS did to Chinese e-commerce in the early 2000s,”. These projections highlight the potential that exists not just in the more mature ecommerce market of China but the likes of Brazil, Chile, Mexico, Indonesia, India, Vietnam and many other geographies now incentivised to accelerate their mobile adoption rates.

Source: https://www.bloomberg.com/news/articles/2020-04-30/virus-lockdowns-see-latin-america-online-buyers-playing-catchup 

India Remains the Big Risk & Opportunity:

A severely underdeveloped healthcare system, coupled with some of the most densely populated regions in the world, could spell disaster if virus gets a footing. So far the region seems to have avoided the worst but only time will tell.

With a country projected to have a consumer internet sector growing at over 30% CAGR from $30bn in 2016 to $160bn in 2022, it feels as though the virus may act as a multiplier to an already lofty projection.

Source:https://redseer.com/newsletters/how-did-covid-19-impact-india-internet-and-whats-the-way-forward/ 

U.S. China Relations Degrade Further:

With S. 945 under consideration, more than 200 Chinese listings on U.S. exchanges are in jeopardy of being delisted in 3 years if not allowed for audit review by the PCAOB and disclose any government ownership or board members. For EMQQ, we ultimately feel that the new audit rules are welcomed. This is a positive development that will only further validate international players, especially EMQQ constituents given they are some of the larger non-government owned players in the space. EMQQ remains relatively insulated as we’ve continued to argue against owning any state owned or state backed companies in any EM’s. Many of these companies under question have already listed in HK or are looking to do so in the coming years so if the law comes to pass, minimal to nil trading impact will be felt. Will be a loss for US exchanges if it happens. Main risk is headline and political. We expect the anti-China rhetoric to continue into the Nov elections with the potential for more individual names to be targeted in a symbolic way for the greater geopolitical chess match similar to how Huawei has been.

Source: https://www.bloomberg.com/news/articles/2020-04-30/virus-lockdowns-see-latin-america-online-buyers-playing-catchup

Constituent News

Source: Bloomberg / HANetf. Data as of 31/05/20

Fund Details

EMQQ Emerging Markets and Ecommerce UCITS ETF, is a UCITS compliant Exchange Traded Fund domiciled in Ireland.

The fund tracks an index of leading internet and Ecommerce companies that serve emerging markets, including search engines, online retailers, social networks, online video, online gaming, e-payment systems and online travel. The fund seeks to provide exposure to the growth of online consumption in the developing world.

Please remember that the value of your investment may go down as well as up and past performance is no indication of future performance.

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Article Date: 10th June 2020.