On Demand Webcast: An ETF to Capture Emerging Markets Consumer Trends
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.
For example, India’s population is 25 times larger than South Korea and 54 times larger than Taiwan, but India only makes up 6% of the MSCI EM Index, whereas South Korea is 16% and Taiwan is about 12%. In the frontier market space, Kuwait makes up a hefty 26% of the MSCI Frontier Market Index, but the Middle East country’s population is 51 times smaller than Nigeria and 27 times smaller than Vietnam.
“Emerging Market allocations are evolving as investors refine their exposure in an effort to capture the growth of emerging and frontier markets,” Carter said.
Carter also argued that the shift in the way we live will also affect emerging market opportunities. For instance, emerging market countries are witnessing growth of affordable access to broadband, with smartphones usage overtaking both mobile phone and personal computers. The ease of access to the internet through mobile devices has also fueled consumer habits, notably increased usage of online retail shopping or e-commerce.
As investors look for ways to access the growing emerging market segment, one can consider targeted plays like the Emerging Markets Internet & Ecommerce ETF (NYSEArca: EMQQ) to help gain targeted exposure to the quickly expanding global consumer sector, notably those related to online retailers or the quickly expanding e-commerce industry in the developing world. To be included within the ETF’s underlying index, companies must derive their profits from Ecommerce or Internet activities and include search engines, online retail, social networking, online video, e-payments, online gaming and online travel.
EMQQ primarily focuses on the internet and e-commerce sectors of the developing world, helping investors capitalize on consumption in emerging markets, which represents a significant opportunity as more than a billion people are expected to enter the consumer class in the coming decades.
Financial advisors who are interested in learning more about the emerging markets can watch the webcast here on demand.