These EM Funds Offer Long-Term Growth Potential Amidst Short-Term Inflation Fears

Investors are increasingly worried about global inflation and rising interest rates. Inflation has risen across the globe, leading many emerging markets to enter a stagflation phase, according to the Institute of International Finance. The International Monetary Fund’s latest World Economic Outlook report projects global growth to slow to 3.6% in 2022 and 2023 from an estimated 6.1% in 2021. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than the IMF projected in January.

“The war in Ukraine has triggered a costly humanitarian crisis that demands a peaceful resolution,” IMF’s report states. “At the same time, economic damage from the conflict will contribute to a significant slowdown in global growth in 2022 and add to inflation. Fuel and food prices have increased rapidly, hitting vulnerable populations in low-income countries hardest.”

But while short-term inflation and rate concerns are understandably top of mind for investors, EMQQ Global’s stable of emerging markets ETFs — the Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ), the Next Frontier Internet & Ecommerce ETF (FMQQ), and the recently launched India Internet and Ecommerce ETF (NYSE Arca: INQQ) — are all multi-decade themes with these concerns increasingly being priced in.

“Across all our portfolios, we’ve seen big multiple compression while the actual growth opportunity hasn’t changed at all,” said Akeem Bailey, director of research for EMQQ Global. “Growing concerns over inflation is creating deep pockets of value for long-term growth investors. Growth at a discount.”

EMQQ includes access to EM companies related to online retailers and the 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. China makes up 53% of EMQQ’s underlying portfolio.

Investors seeking exposure to internet companies in any emerging or frontier market country outside of China may want to consider FMQQ, which uses the same investment strategy as EMQQ but does not contain China as one of the countries the fund invests in. Its top country weightings as of April 20 were South Korea at 31%, and Brazil and India each at 18.3%.

FMQQ 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 ( Securities must meet a minimum of a $300 million market cap and pass a liquidity screen that requires $1 million in average daily turnover.

Launched earlier this month, INQQ provides investors targeted exposure to the companies leading India’s digitization. The fund seeks to provide investment results that, before fees and expenses, generally correspond to the price and yield performance of the India Internet and Ecommerce Index and holds about 20 stocks.

All securities eligible for inclusion in the index must generate over 50% of revenue from internet and/or e-commerce in India, have a minimum market cap of $300 million, and a liquidity screen of $1 million average daily turnover. The index has a market cap weighting with an 8% maximum position and rebalances semi-annually.

For more news, information, and strategy, visit our Emerging Markets Channel.