Emerging Markets 3.0 The Future of Emerging Markets … · 4 The Case for Emerging Markets...
Transcript of Emerging Markets 3.0 The Future of Emerging Markets … · 4 The Case for Emerging Markets...
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Alibaba HQ, Hangzhou, China
Emerging Markets 3.0The Future of Emerging Markets
May 2019
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The Case For Emerging Markets
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What are Emerging Markets?
Emerging MarketsFrontier Markets
Source: MSCI Classifications as of November 2018
*MSCI & FTSE Disagree
AmericasBrazilChile
ColumbiaMexico
PeruArgentina
EuropeCzech Republic
GreeceHungaryPolandRussiaTurkeyCroatiaEstonia
LithuaniaKazakhstan
RomaniaSerbia
Slovenia
Middle EastEgyptQatar
United Arab EmiratesBahrainJordanKuwait
LebanonOman
AfricaSouth Africa
KenyaMauritiusMoroccoNigeriaTunisia
AsiaChinaIndia
IndonesiaKorea*
MalaysiaPakistan
PhilippinesTaiwan
ThailandBangladesh
Sri LankaVietnam
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The Case for Emerging Markets
▪ Different - Diversification benefits vs. Developed Markets– Correlation to S&P 500 < 1.0
▪ Bigger - Larger Consuming Population– 85% of global population and 50% of global GDP
▪ Younger - Favorable Demographics– Millennials and Gen Xers spend 50% more time shopping online than
Baby Boomers and Seniors
▪ Growing Faster– Consumption
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Emerging Markets are 85% of the World
5.6x6,205,000,000
1,095,000,000
-
1,000,000,000
2,000,000,000
3,000,000,000
4,000,000,000
5,000,000,000
6,000,000,000
7,000,000,000
Emerging & Frontier Markets Developed Markets
World Population
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Emerging Markets Have Better Demographics
3,212,146,000
364,854,000
-
500,000,000
1,000,000,000
1,500,000,000
2,000,000,000
2,500,000,000
3,000,000,000
3,500,000,000
Emerging & Frontier Markets Developed Markets
World Population Under Age 30
8.8x
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Emerging Markets are Passing Developed Markets
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The Growth of the EM Consumer is THE Story
“…the biggest growth opportunity in the history of capitalism…”- McKinsey & Company
Source: McKinsey Global Institute
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Investing in Emerging Markets
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CONFLICTS OF INTERESTS
INEFFICIENT
POOR CORPORATE GOVERNANCE
WIDESPREAD CORRUPTION
SOEsCompanies owned and controlled
by the government in order to partake in commercial activities on
the government's behalf
Largest Emerging Market ETFs have ~30% in SOEs
#1 Problem: State Owned Enterprises (SOEs)
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11Source: Evening Standard.
#1 Problem: State Owned Enterprises (SOEs)
~30% of EEM & VWO
are SOEs
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SOEs: Chinese Economic Fugitives & Korean Chaebol
Source: South China Morning Post.
Source: www.reuters.com/article/southkorea-politics-chaebol/titans-of-korea-inc-face-questions-in-political-scandal-idUSL4N1E1075
~30 % of VWO, IEMG &
EEM are SOE’s
Source: South China Morning Post.
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#2 Problem - Country Weights in “the Indexes”
Source: Rostow stages of economic development, World Bank
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Questions about EM Index Weights
25x
Source: World Bank.
1,339,000,000
50,900,000 23,600,000
-
200,000,000
400,000,000
600,000,000
800,000,000
1,000,000,000
1,200,000,000
1,400,000,000
1,600,000,000
India South Korea Taiwan
Population
50x
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Does This Make Sense?
Source: www.ishares.com.
9.01%
12.90%
11.48%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
India S. Korea Taiwan
MSCI EM Index Weights
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Harvard Endowment Emerging Market Exposure
EM 3.0: The Evolution of Emerging Markets Investing
EM 1.0“Toe in Water”
EM 2.0Increased
EM 3.0Index Weight +
3% 8%
China3%
EM Consumer5% Frontier
2%
Other 5%
6% 8% 11.5%
Endowment and foundation emerging market exposure has gone through a number of phases over the years as familiarity and allocation grows so to does the variegated approach
Source: The Endowment Investor: http://endowmentinvestor.com/
2005 20162008
Average Morningstar Emerging
Market Exposure
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Something Big is Happening in Emerging Markets:
The Great Confluence
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The Growth the EM Consumer is THE Story
“…the biggest growth opportunity in the history of capitalism…”- McKinsey & Company
Source: McKinsey Global Institute
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Smartphones Still A Relatively New Thing
Apple CEO Steve Jobs demonstrated the first iPhone at the Macworld expo in 2007.
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Smartphones Changing Our Consumption Patterns
OLD WAY
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Smartphones Changing Our Consumption Patterns
NEW WAY
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Cheap Smart Phones – The First & Only Computer for EM
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$531
$419
$338
$288 $262
$567
$259 $230 $246
$215
$0
$100
$200
$300
$400
$500
$600
North America Europe Middle East and
Africa
Latin America Asia/Pacific
AVERAGE SELLING PRICE OF A SMARTPHONE BY REGION
2013 2017
Region 2013 2017Price
Difference
North America $531 $567 6.80%Europe $419 $259 -38.20%Middle East and Africa $338 $230 -32.00%Latin America $288 $246 -14.60%Asia/Pacific $262 $215 -17.90%
Increasing Smartphone Affordability
Source: IMF, World Economic Outlook database ,CapIQ, CB Insights
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24Source: IMF, World Economic Outlook database ,CapIQ, CB Insights
INTERNET PENETRATION
772 million users
(55%)
Population in China1.4b people
331 million users
(25%)
Population in India1.3b people
Population in U.S.327m people292
million users(89%)
Smartphone Penetration by Country (2017)
CountrySmartphone
Users (MM)
Smartphone
Penetration
Total
Population
(MM)
United States 226 70% 326
Germany 55 69% 80
United Kingdom 44 69% 65
Russia 78 55% 143
China 717 52% 1,388
Japan 63 50% 126
Mexico 52 41% 130
Brazil 79 38% 211
India 300 22% 1,342
Indonesia 54 21% 263
Mobile Broadband = First Internet Connection for EM
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U.S. VC Funding EM Entrepreneurs
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Result #1 = Massive Revenue Growth (CAGR ~40%)$B
illio
n
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Result #2 = Value Creation
Source: Big Tree Capital Data- The performance depicted is of the Index and is not an investible product. Live performance can be found at www.emqqindex.com.
Gro
wth
in U
S $
Do
llars
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28Source: Wall Street Journal.
BABA - Largest IPO in U.S. History
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U.S. China
Social Networks – Tencent (HK: 0700)
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Mobile Payment Adoption is Pervasive
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Mobile Payment Adoption is Pervasive
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0.22.2 1.9
9.2
15.4
25.9
$-
$5
$10
$15
$20
$25
$30
2013 2014 2015 2016 2017 2018e
China's Total Online Transactional Value
($Trillions)
PC Mobile
AliPay54%
WeChat Pay38%
Others8%
China’s Mobile Payment Market Shares
Mobile Payment Adoption Rapidly Expanding
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MELI – “The Amazon/PayPal of Latin America”
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YNDX – “The Google & Uber of Russia”
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MMYT – “The Expedia of India”
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JUMIA – “The Amazon of Africa”
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Private Companies - Didi
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Taking Advantage of Concerns About Trade War and Recent Correction
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• U.S. Initiated Trade War has sparked fears in investors
• We have a strongly mixed view on Trade War:‒ Academia considers tariffs a bad thing (see Smoot Hawley tariffs;
https://en.wikipedia.org/wiki/Smoot%E2%80%93Hawley_Tariff_Act)‒ However, China as an economic force, has perhaps outplayed us the past 20
years as the average Chinese citizen has seen standard of living has increased dramatically vs. U.S. citizens.
• Fundamental Impact to EMQQ Should be Small‒ Trade wars are about steel, cars, pigs and sorghum while EMQQ is about
people in China, India, Africa etc. accessing information, buying food, hailing rides, etc. on their smartphones.
Our View on Trade War and Significant Correction
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Recent pullback has created multiple contraction where price has dislocated from value.
EMQQ Valuation Data
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• Growth - The Great Confluence ‒ EM Consumer + Smartphones + Internet via Mobile Broadband ‒ Ecommerce models “leapfrogging” traditional models‒ Ecommerce growing 5x as fast as consumption
• Better Corporate Governance‒ No State Owned Enterprises‒ Most companies backed by U.S. VC & trade on U.S. exchanges
• Exposure to Private Companies & Frontier Markets
• Valuations Seem Compelling
The Case for the Emerging Markets Internet Sector
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The Future Of Emerging Markets is Here.
Q&A
Contact for more information:Kyle Parker
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• Includes 65 Publicly Traded Emerging Markets Internet Companies
• Rules Based Index‒ All companies with >50% of revenue from internet and/or ecommerce in
emerging and frontier markets‒ Minimum $300mm market capitalization‒ Liquidity screen $1.0mm average daily turnover‒ Rebalanced semi-annually in June & December‒ Market Cap weighted with 8% maximum weight per security at rebalance
• Licensed to Exchange Traded Concepts as the basis for an ETF
• EMQQ The Emerging Markets Internet ETF (NYSE: EMQQ)
• More information at www.EMQQetf.com
EMQQ Index Overview