Emerging markets securities are trading at fantastically low levels, with valuations for technology stocks in the developing world being particularly appealing. The combined equity value of the 24 nations classified as emerging markets by MSCI has fallen $4 trillion since a peak in early 2021, partially driven by Fed rate hikes, surging inflation, COVID outbreaks in China, and the war in Ukraine.
The valuation gap between U.S. tech and Chinese tech has widened considerably, with bellwether Chinese stocks such as Alibaba and Tencent trading at multi-decade lows. Alibaba is the cheapest it’s ever been on a P/E basis, while Tencent hasn’t been this cheap on a P/B basis in over 20 years. Additionally, the price-to-book ratios of the top 10 Chinese companies are a quarter of those of the FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google).
China-based securities aren’t the only ones experiencing this valuation compression. Although China tends to dominate the headlines, internet and e-commerce companies from markets like Brazil, India, and Indonesia have seen even steeper valuation compressions, trading well below their pre-COVID levels.
But some long-term investors who are less concerned with market volatility see this as a potential buying opportunity. Paul Greer, a money manager at Fidelity International in London, told Bloomberg that the asset manager has “reduced” its “bearishness on the emerging market asset class.”
“While fundamentals remain very challenged, the valuations on offer, coupled with a more favorable technical picture, have meaningfully altered the near-term risk-reward asymmetry,” Greer added.
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.”
Investors looking to take advantage of these valuations in the emerging markets space may want to consider EMQQ Global’s Emerging Markets Internet & Ecommerce ETF (NYSE Arca: EMQQ) and 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.
For more news, information, and strategy, visit our Emerging Markets Channel.