Emerging Markets Internet and Ecommerce Monthly Report | September

• As countries now begin to restart their economies, the new normal is now becoming clear as digital adoption becomes pervasive and embedded in our everyday lives ushering in a new digital age for the developing world.
• The acceleration of fintech and the growth potential will soon be on full display with the Ant IPO this fall in what could be the largest IPO in history
• The US China conflict continues to evolve towards it originally intended goal with technological supremacy at its heart.
• The US administrations target of de-listing Chinese companies makes clear that it sees the rise of China’s technological strength as an existential crisis and will continue to escalate the confrontation heading into November.
• India has now taken second only to the US with the greatest number of virus cases as we remain concerned for the potential impact India and surrounding densely populated regions could face.¹
• IMF’s latest GDP growth for 2020 puts Emerging and Frontier economies at -1% with Advanced economies at -6% for 2020. ²

Performance Review

Our Emerging Markets ETF, EMQQ, has posted a return of over 70%, consolidating its lead of best performing EM ETF in the category.³

The drivers of performance for EMQQ in August was indicative of the overall impact the pandemic has had on the world economy. The best 5 contributors were, Meituan Dianping (China), Pinduoduo (China), MercadoLibre (Argentina), JD.com (China), and  Sea Ltd (Singapore), all of which posting over 100% returns YTD. With digital infrastructure having already grown and has been adopted in China, ecommerce dominant platforms are benefiting the most as the rest of the world is experiencing similar growth growth with MercadoLibre consolidating its expansion in Central and South America and Sea Ltd across Southeast Asia. With these platforms moving into other verticals such as fintech and cloud services, we expect these mega trends to continue over the long run.

 The other side of the Covid coin is the travel, hospitality, and services sectors, where unsurprisingly Trip.com, the Chinese travel and ticketing platform, has been our worst performing contributor YTD.

Emerging Market ETF Performance

With the recent strength in market appreciation, we feel it is important to take a step back and look at where we stand in this growth story and what the valuations and growth rates are telling us. The data below breaks down segments of the market that have been the tip of the spear when it comes to global growth over the past few decades. With the current growth outlook in the year of Covid, you’d be hard pressed to find positive growth estimates higher, yet EMQQ and the FAANG companies look to be well positioned. The difference lies in where each segment lies in their respective growth cycle and how EMQQ may hold a similar valuation, but with almost twice the growth rate as emerging economies begin to go online.

Average Annual YoY Revenue Growth

Past performance is no guarantee of future performance. Source: Bloomberg data. *EMQQ Adjusted forward PE. FAANG: Facebook, Apple, Amazon, Alphabet, Netflix. BAT: Baidu, Alibaba, Tencent

As many have described this shift in global economic balance as the coming “Asian Century”, we look at where the source of this growth will come from and implications for our emerging markets ETF.

On the cusp of a digital revolution, emerging markets are only now beginning to transform consumer behaviours in a way that is allowing all areas of the economy to be impacted; be it healthcare, education, or how we manage our finances. India now holds the key to the next leg in this global digitisation wave. Armed with the lowest cost of data, and increasingly affordable smartphones increasing access, the billion plus people in India will soon be going online for the first time.⁴ 

For illustrative purposes only
Source: 2020 Global Digital Reports

EMQQ vs Key EM Competitors- as of 31/08/2020 (For illustrative purposes only)

Source: Bloomberg, Aug 31, 2020 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

Ant Group IPO: Anticipated to be one of if the largest IPO’s in history, Alibaba’s fintech arm Ant Financial is looking to forgo the trend of recent years of listing in the U.S. and instead targeting a HK and Shanghai listing.⁵ 

DiDi IPO: One of the largest private companies in the world, the ride hailing unicorn from China is rumoured to be getting pressure from investors like SoftBank and Hillhouse to go public. A target of October or November could be the window and most likely listing in HK due to the recent China/US tensions.⁶

INdia Increasing Domestic Technology Protection: Following a fatal military skirmish on the northern border with China, India’s Modi has moved to retaliate in blocking a number of Chinese made apps within the country. The move has proven a strategic one as Modi’s government has taken stronger action to protect domestic tech companies as well as a political push back on the Chinese.⁷ 

Constituent News

Source: Bloomberg / HANetf. Data as of 31/08/20

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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