Folks in developed markets take for granted things like easy access to the internet and sophisticated smartphones. Those amenities are part of everyday life in wealthy nations, and it feels like everyone has access to one if not both.
That’s not the case across much of the developing world, but digitization is taking flight in emerging markets, and that momentum could be constructive for exchange traded funds such as the Next Frontier Internet & Ecommerce ETF (FMQQ) and the Emerging Markets Internet Ecommerce ETF (EMQQ).
As is the case in developed markets, the coronavirus pandemic is stoking increasing adoption of disruptive digital technologies such as e-commerce and fintech.
“While in some ways 2020 was reactive, with governments and businesses scrambling to implement digital approaches, 2021 was proactive, as those approaches were streamlined and synthesised,” according to Oxford Business Group. “As different countries and regions went in and out of lockdown in response to successive waves of Covid-19, many businesses and institutions integrated a flexible, ‘blended’ approach, combining online and in-person operating methods.”
The research firm highlights themes such as e-commerce, fintech, and online payments, which EMQQ and FMQQ are levered to. In fact, both ETFs were recently rebalanced and significantly boosted to fintech names.
In fact, expanding fintech in emerging markets carries elements of sustainability and socially responsible investing.
“Digitalisation is also helping to expand financial inclusion in the country – an effect that is being observed in many economies around the world,” notes Oxford. “For example, in Morocco, financial technology (fintech) is advancing rapidly: the country has embraced its efficiency and low costs as a way to bolster financial inclusion, with both the government and private sector deploying fintech tools for payments.”
On a regional basis, Latin America is fertile territory for more digitization and e-commerce.
“In Latin America, for instance, prior to the outbreak of the virus, e-commerce penetration was comparatively low, with uptake hindered by the region’s substantial unbanked population, complicated logistics connections and general lack of trust in online methods,” adds Oxford.
The aforementioned EMQQ allocates 4.14% to MercadoLibre (NASDAQ:MELI) and over 9% of its weight to Latin American countries. MercadoLibre accounts for nearly 8% of FMQQ, and Brazil and Argentina combine for 21.4% of that ETF’s geographic exposure.
For more news, information, and strategy, visit our Emerging Markets Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.