Amidst Russia’s invasion of Ukraine, several of the top holdings in the Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ) are seeing their valuations plummet. Despite still having strong fundamentals and potential for growth, companies like Tencent Holdings Ltd. (TCEHY), Alibaba Group Holding Ltd. (BABA), and Prosus NV (PROSF) saw record drops in their PE ratios.
But Akeem Bailey, director of research for EMQQ, notes that these low valuations could be a potential opportunity for long-term investors to buy into the emerging markets sector while prices are low.
“While Russia accounts for less than 2% of EMQQ’s exposure, the negative headlines have taken its toll on the broader space,” said Bailey. “Sentiment is quite depressed right now but when that does turn, valuations remain at very attractive levels for longer-term investors.”
And the fundamentals for many of these companies remain strong. Despite shares being down 3% on Thursday, Alibaba posted a 10% year-over-year increase in revenue, beating Refinitiv consensus estimates. And while valuations for MercadoLibre Inc. (MELI) have dropped to multi-year lows, sales growth for the e-commerce giant exceeded expectations, while revenue grew 74% year-over-year on a FX neutral basis, with a slight acceleration over last quarter. Additionally, Tencent Holding’s diverse revenue and profit streams and good standing with Chinese regulators make it a strong long-term buy.
Bailey went on to note that earnings are projected to bounce back by around 29% this year, which should ultimately drive the story “when the clouds pass.” Growth across EMQQ’s portfolio is expected to remain resilient throughout 2022, as demonstrated during previous bouts of volatility.
“At the moment, however, the market is pricing that growth at a hefty discount,” Bailey added.
EMQQ includes access to EM companies related to online retailers and the expanding e-commerce industry. To be included within the ETF’s underlying index, companies must derive most of their profits from e-commerce or internet activities like search engines, online retail, social networking, online video, e-payments, online gaming, and online travel.
The emerging markets are also enjoying a booming pipeline of new initial public offerings that includes a range of new internet names to tap into the shifting consumer trends toward online shopping.
EMQQ founder & CIO Kevin Carter recently explained that emerging and frontier markets are poised for major growth because of three megatrends: “the rise of the emerging markets consumer,” the computer, and the internet.
Carter expressed belief that the internet sector would support emerging market growth, especially given the shifting demand among emerging market consumers for smartphones and internet via mobile broadband. Consequently, EM e-commerce models are “leapfrogging” traditional models and are growing five times as fast as consumption.
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