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- Anti-trust headlines spilled over from last
month as Chinese tech firms continue to adjust to a new wave of increased
regulatory scrutiny. Despite this pressure, China’s internet companies still have
a long runway of growth ahead of them. Short-term tension around certain
rectifiable practices should not disguise that. Charlie Munger put it best
during the recent annual Berkshire Hathaway meeting in early May: “The Chinese government will allow
businesses to flourish.”
- The COVID-19 situation in India has deteriorated
over the last month, but the international community has taken notice and
action. Despite the dire situation, UBS still anticipates a new wave of Indian
tech companies to IPO in the latter half of 2021, helping increase the
investible universe of internet stocks in the country. Like so many other
countries across the world, COVID-19 has accelerated digital adoption in India
and the companies leading that charge locally are gearing up to go public.
-
EMQQ Launches “EMQQ Evolves,” our distinct
approach to ESG. We invite you to learn more by reading our Action Plan and
Letter from the Founder, Kevin Carter,
EMQQ
Performance
April
|
12 Month*
|
0.29%
|
81.33%
|
Past performance is no guarantee
of future performance.
Source: Bloomberg, HANetf
*12
Month figures based on 30.04.20 -30.04.21.
Performance Review
Breakdown of Performance:
The Emerging Markets ETF (EMQQ) has posted a trailing 1-year return over 80% as of April
2021.
April continued the sluggish trend
from March, albeit at a decelerated pace. The performance for the month was essentially
flat as the market continues to digest Chinese anti-trust headlines. From our
vantage point, we continue to view these developments as manageable for the
country’s internet companies. We discuss that in more detail below. The leading
contributors to EMQQ’s performance CY are Sea Limited and Netease,
both posting gains over 26% and 17% respectively. Sea Limited continues to assert
its dominance in the Southeast Asian e-commerce scene while its mobile game
franchise is picking up pace in international markets. Meanwhile, Netease has
managed to fly under the radar of Chinese regulators, ultimately putting less
pressure on its share price so far this year.
The two largest detractors for the first
four months are Pinduoduo and Kuaishou, dropping over 24% and 33%
respectively. Pinduoduo continues to consolidate after a 180%+ return over the
last twelve months. Meanwhile, the market continues to digest Kuaishou’s long
term strategy as it gradually shifts away from livestreaming and towards other
growth avenues, including advertising and e-commerce.
Past performance is no guarantee of
future performance. Source of all data: EMQQ/ Bloomberg
EMQQ Performance

|
1M
|
3M
|
6M
|
YTD
|
12M
|
SI
|
EMQQ Emerging Markets Internet & Ecommerce UCITS ETF (Acc)
|
0.29%
|
-7.46%
|
16.35%
|
0.05%
|
81.33%
|
105.20%
|
EMQQ Emerging Markets Internet & Ecommerce Index™
|
0.38%
|
-7.33%
|
16.86%
|
0.30%
|
82.98%
|
111.61%
|
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 30.04.2021
Industry News
China Anti-Trust: Anti-trust headlines spilled over
from last month as Chinese tech firms continue to adjust to a new wave of
increased regulatory scrutiny. While Alibaba was slapped with a $2.75 billion
fine in April for its forced exclusivity practices,[1]
other tech titans like Meituan and Tencent are expected to follow suit. But with
close to $70 billion in cash and cash equivalents on its balance sheet, Alibaba
should be able to weather the financial penalty quite well. Despite all the
brash headlines, the demands of the Chinese regulators do not appear all that
unreasonable and the tech industry should be able to adjust quickly once new
rules are fully laid out. As we have noted in last month’s note, this new wave
of scrutiny is not about regulators trying to stymie growth of the sector, but
rather helping it grow in a more sustainable fashion. What is more knee-jerking
is the speed at which the regulators are dealing with this. What would take
most countries years to address, China will probably tackle in a few months. Nonetheless,
the long-term prospects of the sector remain robust. Charlie Munger put it best
during the annual Berkshire Hathaway meeting: “The Chinese government will
allow businesses to flourish.”
COVID Crisis in India: The COVID crisis in India has become global
headlines in recent weeks as the country (like many before it) struggle with
the most recent surge in infections. For its part, the international community
has responded with aid to help sure up the country’s oxygen shortage, amongst
other measures. Despite these tremendous setbacks, India’s robust roster of
private tech companies have not been discouraged from pursuing IPOs. Global
investment banks like UBS expect activity to
accelerate in the second half of the year, helping improve the universe of
internet companies in the world’s second largest country.[2]
EMQQ & ESG: In April, EMQQ announced the concrete
steps it is taking to create a sustainable organizational model and to advance
the EMQQ team’s commitment to Environmental, Social and Governance (ESG)
related issues; a plan the team has labelled “EMQQ EVOLVES.”
Constituent News
Kakao and a New Wave of Korean IPOs: April was a busy month for Korean
Super-App and EMQQ portfolio company, Kakao Corp. While the company is
best known for its widely used social-media platform, KakaoTalk, the company
has also incubated a strong roster of ancillary tech businesses. This includes
a bourgeoning payments arm, a digital bank and a ride hailing platform to name
a few. Like Tencent in China, Kakao has managed to build an impressive
portfolio of venture capital investments. The company is increasingly looking to
monetize those investments as it prepares to bring more of those private
companies to the private market and further enrich the current pool of
publicly-traded Korean internet companies.
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.
EMQQ v FAANG: Projected
Avg YoY Revenue Growth

For illustrative purposes only. Source:
Bloomberg as of 27.04.2021
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