Much has been made of the rise of e-commerce at the expense of traditional brick-and-mortar retailers in the U.S., but in developing economies, many consumers have never been exposed to brick-and-mortar retailers the way U.S. consumers have been.
Many emerging markets consumers do the bulk of their discretionary shopping online and many do so with mobile devices, indicating e-commerce is an epic growth opportunity in developing economies. Investors interested in this potential growth story can tap into this emerging market sector through a targeted Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ), which tracks both internet and online retail or e-commerce companies.
Markets are validating the growth potential offered by emerging markets Internet and e-commerce names. Year-to-date, EMQQ is up more than 31%, a performance that is better than double the returns offered by the MSCI Emerging Markets Index.
“How’s it accomplishing this? By focusing on technology companies that generate most of their revenue from the developing world. Investors are flocking to tech stocks and sending emerging market shares to their best annual start in at least a decade, as they scale back expectations for spending and tax cuts under U.S. President Donald Trump,” reports Carolina Wilson for Bloomberg.
EMQQ allocates 62% of its weight to Chinese companies, including familiar names such as Alibaba (NYSE: BABA). South Korea and Russia combine for 22% of EMQQ’s weight.
The developing world make up 85% of global population and 50% of global GDP. There is a much larger younger population in emerging countries than developed countries. The emerging markets are also characterized by faster growth rates. Lastly, after the recent multi-year underperformance, emerging stocks look undervalued and attractively priced, compared to U.S. equities.
“Still, the strategy is paying off for now as investors are piling into the fund. EMQQ, which charges a fee of 86 basis points, had never attracted more than $3 million of net inflows in a month until October, according to data compiled by Bloomberg. Since then, investors have added $24.1 million, the data show,” according to Bloomberg.
China is the world’s largest Internet market with more Internet users than the U.S. population, but many emerging markets have small Internet penetration. That bodes well for EMQQ’s long-term growth potential.
EMQQ and ETF Trends will delve into the greater influence of emerging market consumers, their preference for online shopping via the smartphone and ways for investors to gain targeted exposure to the rapidly expanding e-commerce segment. Advisors can register for a May 16 webcast on EMQQ here.