- Chinese tech firms have come under increased
regulatory scrutiny this month, mirroring the same issues faced by Big Tech in
US and European markets. Increased regulation is, however, to be expected for
companies that have been innovating at break-neck speeds. Even after a round of
potential fines and stricter regulations, China’s digital giants will be able
to quickly adjust and still have vast amounts of opportunity ahead of them
- Tencent reported a robust set of results
with revenues growing 26% year-on-year while the user base of its
popular WeChat App jumped to 1.2 billion
- Coupang, the “Amazon of South Korea”, was
added to the Emerging Markets ETF Q in March via the fast-track IPO rule
- China-based Tuya becomes the world’s
first AI Internet of Things firm to IPO and also joins the ranks of the Emerging Markets ETF,
taking our total count to 98
- The International Monetary Fund projects GDP growth in China
and India to hit 12.5% and 8.4%, respectively, in 2021
- India’s IPO pipeline continues to heat up as Flipkart,
the county’s leading e-commerce platform, and Zomato, the local
equivalent of Doordash, have signalled they are preparing for IPOs later this
year. Meanwhile Nazara Technologies, a company we have flagged in the past, completed
its own IPO and becomes the first Indian gaming company to go public
EMQQ
Performance
March
|
12 Month*
|
-9.65%
|
101.41%
|
Past performance is no guarantee
of future performance.
Source: Bloomberg, HANetf
* 12
Month figures based on 31.03.20 -31.03.21.
Performance Review
Breakdown of
Performance: The Emerging Markets ETF (EMQQ) has posted a trailing 1-year return in excess of 100%
as of March 2021 and remains the best performing EM ETF in the category.
Coming off a strong 2020 and first
two months of the year, March witnessed a brisk pullback driven by anti-monopoly
headlines out of China. We largely view these measures as manageable for the
country’s largest tech companies. We discuss that in more detail below. The leading
contributors to EMQQ’s performance CY are Naspers and Tencent, both
posting gains over 16% and 7% respectively. Both were buoyed by Tencent’s
robust Q4 results, which saw sales grow 26% while monthly active users for the
company’s WeChat App climbed to over 1.2 billion. Our two largest Korean weights,
Naver and Kakao, have also been worthy contributors driven by their
solid Q4 results and the strong market debut of Coupang.
The two largest detractors for
the two months were Mercadolibre and Pinduoduo, dropping over 12%
and 24% respectively. However, with both stocks posting returns north of 200% over
the last year, a breather is understandable. Meanwhile, both
companies reported strong revenue and user growth numbers in their most recent
fourth quarter results.
EMQQ Performance
|
1M
|
3M
|
6M
|
YTD
|
12M
|
SI
|
EMQQ Emerging Markets Internet & Ecommerce UCITS ETF (Acc)
|
-9.65%
|
-0.24%
|
22.63%
|
-0.24%
|
101.41%
|
104.61%
|
EMQQ Emerging Markets Internet & Ecommerce Index™
|
-9.68%
|
-0.08%
|
23.14%
|
-0.08%
|
103.19%
|
110.81%
|

As of 31.03.2021
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 31/03/2021
Industry News
China Anti-Trust: The anti-trust rhetoric in China
picked up further in March. Most of the country’s internet giants have come
under increased scrutiny. Over the last few months, we have seen regulators
dole out fines for a series of behaviours they deem to be monopolistic in
nature. Yet most of these issues appear to be rectifiable in the short term. We
predominately see these moves as regulation catching up with rapid innovation
rather than trying to stymie them. Even with stricter regulatory frameworks,
China’s digital giants have vast amounts of opportunity ahead of them while
also giving smaller players room to also prosper. This will perhaps give rise
to another subset of interesting consumer and tech companies. Furthermore, If
China is to meet its goal of becoming a consumer-oriented, technologically competitive
country, it is hard to imagine this happening without a dynamic, innovative
private tech sector. The balance of probabilities would suggest that both sides
will recognize their symbiotic relationship, and thus reach a sensible compromise.
The Indian IPO Pipeline
Heats Up: While India is expected
to overtake China in terms of population this decade, it remains
under-represented in terms of public internet and e-commerce companies. COVID-19,
however, has accelerated
the IPO process for several
local tech players. As many as 10 companies could enter the public domain over the next
18 to 24 months. This includes Walmart-backed Flipkart, India’s largest
e-commerce company, and Zomato, a popular food ordering platform. Both
companies have signalled to the market they are undertaking measures to IPO in
2021.
IMF
GDP Projections: The International Monetary Fund raised its China growth forecast to a 10-year
high. Its 8.4% growth forecast for China is much higher than other major economies including the
United States, Germany and France. The IMF also forecasts
India to grow 12.5 percent this year, which would make it the
world’s fastest-growing major economy in 2021. While a recent surge in COVID
cases poses a threat to these early projections, the IMF suggests we are
already seeing signs of normalization across the economy.
Constituent News
Coupang Fast Track Add: Coupang Inc. (NYSE: CPNG) started trading on March 11,
2021 and in the process became the largest foreign IPO on Wall Street Since
Alibaba. Coupang is the market leader in Korean e-commerce, with a market share
just shy of 25%. The company has cemented its dominance through its “Rocket Delivery” service that ships packages to customers within a day
or even hours. 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.
Tuya
Fast Track Add: Founded in June 2014, Tuya has become a popular
global AI + IoT (AIoT) platform, providing global developers, companies, and
individuals with one-stop IoT services. The Company’s technology is used to
help power smart appliances globally and it processes over 84 billion device
requests a day. The Company is backed by Tencent and NEA, the world's largest
venture capital firm. Like Coupang, Tuya was fast tracked into EMQQ, taking the
count to 98.
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 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 favour e-commerce over the mall.
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 representation 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.