The digital story in Latin America is still in very early stages relative to both the U.S. and China and has potential to grow considerably, according to the latest monthly report from the Next Frontier Internet & Ecommerce ETF (FMQQ).
As more countries, including Argentina, Brazil, Colombia, Mexico, and Uruguay, reach “internet critical mass” of around 75 million to 100 million users, ETF issuer EMQQ Global anticipates that FMQQ businesses in the region will achieve the same scale of benefits as those from the first and second wave of companies in the U.S. and China, respectively.
“The formula is quite simple. It boils down to increasing smartphone penetration and a growing millennial population that have been digitally native from day one,” said Akeem Bailey, director of research at EMQQ Global. “Those two levers are clearly quite structural across the FMQQ universe. That’s what driving growth.”
FMQQ, which debuted last September and tracks the FMQQ Index, features exposure to 17 countries, and China isn’t part of that group. The fund is designed to provide investors with exposure to the internet and e-commerce sectors of the developing world and holds over 60 companies operating in emerging and frontier markets. FMQQ allocated 13.3% of its weight to Brazil at the end of last year, making it that ETF’s second-largest geographic exposure behind South Korea.
Bailey added that the team is “looking at another 30% revenue growth in FMQQ after a 46% acceleration in 2021.”
“The short-term growth is still there. The long-term tailwinds are there,” Bailey said.
And while investors are understandably concerned about where the 10-year Treasury note is trading today, Bailey noted that “seeing where the puck is headed is also important.”
“The FMQQ story has long-term compounding potential based on a theme we’ve seen play out over and over again,” added Bailey.
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