The growing influence of the rising consumer base in the emerging markets and their preference for online shopping via the smartphone provide a unique opportunity for investors to gain targeted exposure to the rapidly expanding e-commerce segment through a targeted exchange traded fund strategy.
On the recent webcast (available on demand for CE Credit), A Billion New Consumers in Emerging Markets, Kevin Carter, Founder and CEO of EMQQ, outlined three main factors that support the emerging market outlook, including diversification benefits, large middle-income base and more favorable demographics.
Specifically, the emerging markets have exhibited diversification benefits when coupled with developed market exposure, with developing market stocks having shown correlation to the S&P 500 that is less than 1.0. The emerging markets also make up 85% of the global population and 50% of global GDP, so it is in the best interest of investors to look beyond the U.S. segment and consider the bigger picture. Lastly, the favorable demographics, especially with a larger younger generation, will also help support growth ahead.
“By 2025, the consuming class will swell to 4.2 billion people,” Carter said. “Consumption in emerging markets will account for $30 trillion – nearly half of the global total.”
Carter also pointed out that there are certain considerations as investors look to emerging market exposure. For example, state-owned enterprises, or companies created by the government to take part in commercial activities, may be a major cause for concern as many broad emerging market benchmarks include a hefty 30% tilt toward state-owned enterprises. These state-owned enterprises come with their own risks, such as conflicts of interest, inefficient management, poor corporate governance and corruption.
Major emerging market benchmarks also skew towards borderline-developed markets, such as South Korea and Taiwan, and exposure to legacy industries, which may limit growth opportunities.