Emerging Markets and Ecommerce Monthly Report | February

• India’s strong slate of potential internet IPO’s for 2021 kicked off with Nazara Technologies, India’s first gaming technology stock to go public as they look to take advantage of the massive online/mobile gaming market in India[1]
• Antitrust sentiment continues to grow as governments globally grapple with imposing curbs on the very industries driving their respective economies growth. Our Emerging markets ETF welcomes the potential increased competitive landscape, ultimately promoting more domestic internet companies and increasing exposure to a diverse set of emerging market geographies.
• McKinsey’s claim of “the biggest growth opportunity in the history of capitalism” enters a new phase as the adoption of a more digital consumer lifestyle gains traction in the less developed yet equally populous regions of the world. Emphasis on India and Africa writing the next chapters in this spreading digital revolution story.
• Ant Group has finally reached an agreement with regulators to become a financial holding company, potentially opening the door to an IPO later this year. The extent of damage inflicted on its valuation is yet to be known[2]
• India’s Modi has put himself between a digital rock and a democratic hard place. Recent farming legislation that’s created a wave of protests saw Modi shut down internet access to over 52 million in attempt to quell the protests[3]
• The EMQQ growth story remains as healthy as ever with a projected average 36% YoY revenue growth rate for the index[4]
• EMQQ rebalance in Dec resulted in 20 new adds and 7 removals leaving the new Index with a total of 96 holdings[5]
• As the Emerging Markets ETF approaches its 3rd year anniversary with HANetf, the strategy remains the number 1 performing EM Index for the category as of the end of January for YTD, 1yr, and SI[6] 

Performance Review

Breakdown of Performance: Our Emerging Markets ETF (EMQQ) has posted a trailing year return of over 90% and remains the best performing EM ETF in the category.

Coming off a strong year returning over 80% for calendar year 2020, January continued that momentum, posting an 8.24% return for the month.  The leading contributors to EMQQ over the first month of the year was Tencent, Meituan, and NetEase as they all posted returns of over 20% after isolated outbreaks pushed specific regions of China back into strict quarantine, providing a renewed boost for the quarantine economy names.

Pinduoduo was surprisingly one of the largest detractors for the month of January, dropping over 6%, however in context to it’s impressive run in 2020 posting a return of over 300%, a breather is understandable. StoneCo and Yandez were the other two largest detractors for the month, however similar pauses posting over 100% and 55% for the 2020 calendar year.

EMQQ Performance

Past performance is no guarantee of future performance. Source: Bloomberg, HANetf *12 Month figures based on 31.01.20 -31.01.21.

EMQQ Performance

As of 31.01.2021

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. Source: Bloomberg / HANetf. Data as of 31/01/2021

Industry News

US Executive Orders: Biden appears to be putting a pause on any delisting or further divestment actions on Chinese listings in the US. After a dizzying flurry of executive orders, rumours and delisting targets over the last few months, it seems the current administration will delay and potentially reverse some of the actions taken.  Immediately after the inauguration, the three delisted Chinese telecom companies all made appeals to be relisted in the US. Uncertain as to what will come, clearly a more tactical and less brute force approach is being taken. Also, EMQQ does not contain any of the “military linked” names in the previous executive order.[7]

Too Good at Capitalism & Antitrust Regulation: China and Europe seem to be the early movers on issuing fines and imposing regulation, however much is still to be determined, with targeted fines, further protectionism and encouraged competition to likely be the outcome. Ultimately this is not just a China issue as governments across the globe are grappling with how to manage these newly disruptive yet highly successful business models. US names face the same issues with potentially greater implications given their global presence as we see Europe imposing big fines and regulations on the likes of Amazon and Google with more sure to come.[8] 

The IPO Party Coming to India: India has taken demonetization efforts and deregulated its financial system to allow for more of its home-grown tech companies to finally IPO on its exchanges. With a healthy pipeline of unicorns and well mature private ecommerce and internet names, we see the Indian tech landscape to have a coming out party and accelerate domestic talent in the space over the next 12-24 months.[9] 

Modi’s Digital Conundrum: India’s Modi has put himself in digital vs democratic tug of war. Recent farming legislation that’s created a wave of protests saw Modi attempt to cut internet access to large regions to quell the protests. After heavily promoting the advancement of the digitized economy, he subsequently cut off not just social media to protesters, but also the very digital economy he has fought so hard to implement, be it mobile payments, food delivery services, telehealth, and cloud services just to name a few. This proving such a method of protest control to be both futile and economically damaging.[10]

Constituent News

Jumia’s Change of Heart: Jumia continues to be one of the bright spots in not just contribution to performance but for the African ecommerce story at large as the company continues to navigate the unique growing pains that comes with building the largest ecommerce platform in Africa. After a much-hyped IPO in April of 2019, Andrew Left at Citron got short and got loud making claims of fraud and illegal accounting, all while the price fell from around $40 to $3 per share. After a number of months and covering his short, Mr Left appears to have changed his mind and calls it a must own stock claiming he now has a long position and a $100 price target.[11]

Yes, Jack Ma is Still Alive: The anti-China conspiracy machine was working overtime the last few months as Jack Ma appeared to be keeping a low profile after running afoul of the parties banking elite and regulators. Once the press and social media picked up on his prolonged absence, the theories spread like wildfire with even Jim Cramer making a not-so-subtle pass at the possibility of Mr Ma being a victim of the Communist Parties use of execution for white collar crime. Turns out he’s fine, stock bounced back, rumours faded, and Alibaba continues its torrid growth rate projecting over 50% year over year for the calendar year 2021.

Outlook

The Digital Revolution Just Getting Started: When McKinsey and Co published a research piece back in 2012 on the rising emerging market consumer wave, they called it “the biggest growth opportunity in the history of capitalism”. A hyperbolic claim to be sure but a statement that planted the seed that lead to the creation of EMQQ and now the best barometer to providing the evidence for such a claim. Having posted performance numbers that put the index at the top of its respective category, we see 2021 as a unique tipping point in this global digital revolution story. With China providing the lion’s share of growth in the ecommerce and internet space for the past decade, we are now seeing the second leg of growth coming from geographies that were slower in adoption but comparably powerful in population and scale. The likes of India, Africa, Southeast Asia, and South America will drive the second half of this transformational story as hundreds of millions have yet to obtain a smartphone.

Gen-Z Will Write the Next Chapters: This next wave will come from the world’s youth with 9 out of 10 Gen Z coming from emerging markets. The consumption preferences that will be shaped by this demographic will prefer not to use cash but mobile payments, prefer streaming content over any cable provider, watch more esports than traditional sports, and certainly not go out to a mall to but clothes.

The EM Value Trap: The market appears to be turning bullish on Emerging Markets broadly with many 2021 outlooks and research pieces advocating the space. We disagree. We believe the Emerging Market space at large is one of the easiest value traps to fall for. The broad-based approach is broken and instead should be approached with nuance, carving out the state-owned elements and isolating the rapidly digitizing consumer. The valuations of the state-owned enterprises that dominate the indexes should and most likely will continue to look cheap.

EMQQ Emerging Markets ETF, is a UCITS compliant Exchange Traded Fund domiciled in Ireland.   The Fund tracks an index of leading Internet and Ecommerce companies serving Emerging Markets. It seeks to offer investors exposure to the growth of online consumption in the developing world. EMQQ holdings operate in diverse markets such as India, China, Brazil, Turkey, Nigeria and Indonesia, to name a few. To be included, the companies must derive their profits from Internet or Ecommerce activities; constituents are broad and diverse including search engines, online retail, social networking, online video, e-payments, cloud computing, online gaming, travel and numerous others. Visit the EMQQ fund page for more information.

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 serving Emerging Markets. It seeks to offer investors exposure to the growth of online consumption in the developing world. EMQQ holdings operate in diverse markets such as India, China, Brazil, Turkey, Nigeria and Indonesia, to name a few. To be included, the companies must derive their profits from Internet or Ecommerce activities; constituents are broad and diverse including search engines, online retail, social networking, online video, e-payments, cloud computing, online gaming, travel and numerous others.

Visit the EMQQ fund page for more information.