Despite maintaining its strong growth trajectory in the first quarter with revenues up over 60%, the valuation for MercadoLibre Inc. (NASDAQ: MELI) has compressed aggressively over the last year. The Argentina-based e-commerce giant is trading well below levels before the onset of COVID-19 in 2020. While the long-term fundamentals remain intact, short-term prices are reflecting an overly heavy dose of pessimism.
MercadoLibre is like many other publicly traded emerging markets companies that are trading at fantastically low valuations, particularly technology stocks in the developing world. In late June, the combined equity value of the 24 nations classified as emerging markets by MSCI fell $4 trillion since a peak in early 2021.
EMQQ Global founder and CIO Kevin T. Carter said that while investors are understandably worried about growth stocks in this environment, “valuations are valuations.”
“Increasingly these companies are beginning to look like value plays,” Carter added. “Many of our companies have increased their buybacks and special dividends to record levels. They see the value when they run their internal models. We think investors will as well.”
MercadoLibre is the ninth largest holding in EMQQ Global’s Emerging Markets Internet & Ecommerce ETF (NYSE Arca: EMQQ) and the top holding in the Next Frontier Internet & Ecommerce ETF (FMQQ), which are designed to provide exposure to the internet and e-commerce sectors within the developing world.
By focusing on the internet and e-commerce in emerging markets, EMQQ looks to capture the growth and innovation happening in some of the largest and fastest-growing populations in the world. More than 60% of EMQQ’s assets are weighted toward China.
FMQQ, meanwhile, seeks to provide investment results that, before fees and expenses, generally correspond to the price and yield performance of the Next Frontier Internet and Ecommerce Index (FMQQetf.com). While it has the same investment philosophy as EMQQ, FMQQ has no China-based holdings. Securities must meet a minimum of a $300 million market cap and pass a liquidity screen that requires a $1 million average daily turnover.
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