Emerging Markets and Ecommerce Monthly Report | March

• Kuaishou or “quick hands” is a short form video sharing and live streaming platform in China that was added to EMQQ in February via the fast-track IPO rule bringing the total number of holdings for the index to 97.
• China’s National People’s Congress announced a projected GDP growth in excess of 6% for 2021.[1]  Similarly, the IMF is projecting the emerging market economies to grow at a real GDP of 6.0% vs 3.9% for advanced economies.[2]
• India’s IPO pipeline continues to heat up with a fintech name in Policybazaar, India’s online insurance/financial services aggregator. It is looking to list in Mumbai but is open to a dual listing as SEBI continues to relax listing regulations[3]
• 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 full extent of damage inflicted on its valuation is yet to be known[4]
• India’s Modi has taken away the very thing he so strongly advocated for. Recent farming legislation that’s created a wave of protests saw Modi attempt to cut internet access to over 52 million in attempt to quell protests[5] 
• As EMQQ approaches its’ 3rd year anniversary with Han, the strategy remains the #1 performing EM Index for the category as of the end of February for YTD, 1yr, and SI

   

EMQQ Performance

Past performance is no guarantee of future performance. Source: Bloomberg, Solactive, HANetf *12 Month figures based on 29.02.20 -28.02.21.

Performance Review

The Emerging Markets and Ecommerce UCITS ETF (EMQQ) has posted a trailing 1 year return of over 100% as of February 2021 and remains the best performing Emerging Markets ETF in the category. Past performance is no guarantee of future performance.

Coming off a strong year returning over 80% for calendar year 2020, the first two months of the year continued to post strong returns up over 10% combined.  Kuaishou Technologies was added in February via the fast-track IPO index rule, adding a holding to the index that has posted over 150% from going public until the end of February. The leading contributors to our Emerging Markets ETF performance current yield was Tencent and Baidu, both posting over 17% and 30% respectively. We’re also seeing some strength back in the online travel and booking names with China’s Trip.com and India’s MakeMyTrip returning over 16% and 13% respectively thus far for the short calendar year 2021.

The two largest detractors for the two months were Delivery Hero and Allegro dropping over 17% and 24% respectively, however in context to both their impressive runs in 2020 posting a return of over 90%, a breather is understandable.

Past performance is no guarantee of future performance. Source of all data: Bloomberg

EMQQ 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. Source: Bloomberg / HANetf. Data as of 28/02/2021

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. We are uncertain as to what will come, but clearly a more tactical and less brute force approach is being taken. Also, our emerging markets ETF does not contain any of the “military linked” names in the previous executive order.[6]

“Too Good at Capitalism” Antitrust Regulation: China and Europe seem to be the early movers on issuing fines and imposing regulation. Although much is still to be determined, 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.[7]

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 its domestic talent in the space over the next 12-24 months.

Modi’s Digital Conundrum: India’s Modi has put himself in a 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.[8]

Constituent News

Kuaishou Fast Track Add: Launched in 2011, Kuaishou has grown into one of China’s largest video sharing platforms with over 700 million monthly active users. It is the main rival to Douyin, which is known as TikTok outside of China. During its February debut, the company raised over $5 billion dollars to help fund its ambitious plan to build out a platform that blends ecommerce, livestreaming and gaming distribution.[9] Given the scale of the IPO, the company was fast tracked into EMQQ. The fast-track IPO rule allows EMQQ to add new holdings ahead of the normal rebalance whose value exceeds $10 billion upon time of its listing.

The Venture Capital Investor Tencent: On March 3, 2021 the Wall Street Journal published an article titled “China’s Tencent Becomes an Investment Powerhouse, Using Deals to Expand Its Empire” to highlight the Chinese tech giant’s sprawling portfolio of lucrative investments.[10] While the company is best known for WeChat, the one-stop Super App, and its large gaming portfolio, the company has also made a series of thoughtful bets across the global digital marketplace. Its portfolio includes lots of private and public companies ranging from JD.Com and Kuaishou (mentioned above) to Snap Inc and Spotify. The Wall Street Journal estimates the company’s investment portfolio has a market value in excess of $200 billion. Tencent has become of the biggest venture capital investors in internet businesses in China and across emerging markets, providing a robust pipeline of future IPOs.

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 the Emerging Markets ETF 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 to 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 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 its domestic talent in the space over the next 12-24 months.

Where the Growth is: Broad based indexes for EM we believe represent a significant value trap being saturated with SOE’s and consequently depressed valuations with little growth. The isolated internet & ecommerce names represent some of the strongest growth rates not just for a few names but the entire sector.

For illustrative purposes only. Capital at risk. Source: Bloomberg as of 28.02.2021

Product Details

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.

Click here to download our EMQQ March monthly report