When investors evaluate emerging markets internet equities and the related exchange traded funds, they typically focus on Asia, meaning China and, to a lesser though growing extent, India.
Indeed, those two massive Asian economies are important in the emerging markets conversation, particularly for investors who are eyeing growth stocks. However, other regions, namely Latin America, offer promise when it comes to developing markets e-commerce and internet stocks.
Among ETFs, the Next Frontier Internet & Ecommerce ETF (FMQQ) is one of the premier ideas for investors seeking Latin America growth stock exposure to consider. FMQQ, which follows the Next Frontier Internet and Ecommerce Index, isn’t a dedicated Latin America ETF, but the fund is better positioned to capitalize on disruptive growth trends in that region than are old guard, diversified emerging markets funds.
“While it’s been a volatile year for both US and global markets, long-term opportunities are potentially beginning to present themselves,” noted EMQQ Global director of research Akeem Bailey.
Adding to the allure of FMQQ is the point that emerging markets equities are undervalued relative to U.S. equivalents. As Bailey noted, that valuation gap is unusually wide today.
“On this commonly used metric, the gap between US and Emerging Markets (EM) hasn’t been this wide since the early part of the 2000s. While making short-term stock market predictions is rather futile, the valuations in EM haven’t been this attractive in over a decade relative to other developed markets,” he said.
Specific to FMQQ’s Latin America opportunity set, e-commerce giant MercadoLibre (NASDAQ:MELI) is among the names to watch. That stock is the ETF’s largest component at a weight of 8.77%, as of August 18, according to issuer data.
“Despite the Latin American e-commerce gains slowed after the pandemic boom, MercadoLibre posted record revenue and better-than-expected profits in Q2, making the stock jump as much as 22%. Operations in Mexico had their first profitable quarter since 2016, and the credit business is expected to increase monetization,” according to Bailey.
Profitability at MercadoLibre’s Mexican operations is notable to investors considering FMQQ because that country is Latin America’s second-largest economy.
Overall, the ETF allocates 22.3% of its weight to Latin American economies with Brazil — the region’s largest — and Argentina accounting for the bulk of that regional exposure.
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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.