Emerging Markets ETF Internet and E-Commerce Jumps On The Resilience Of Chinese Stocks

TEmerging Markets online and e-commerce ETF had a rough start to the year as investors moved away from innovation stocks and rising inflation weighed on consumer confidence. Although the outlook remains uncertain for the tech industry, the fund helped lift restrictions in China at the end of last month.

While the shutdowns in China and a broader shift away from tech stocks have weighed on emerging market Internet ETFs and ETFs. [EMQQ] Since the beginning of the year, the fund is up 21.4% from its 52-week low in May (through June 17).

The fund — which tracks companies in a range of sectors including online retail, search engines, social networking, online video, e-payments, online gaming and online travel — has benefited from overall growth in internet and e-commerce activities in emerging markets in recent years as access expands. to smart phones and more and more people entering the middle class. As described on the fund’s website, McKinsey describes this as “the greatest growth opportunity in the history of capitalism.”

Kevin Carter, founder of EMQQ Global, believes that “the Internet sector in emerging markets is perhaps the largest growth sector in the world today.” “There has been an average annual growth of over 35% in revenue for the segment. All these billions of consumers are getting a smartphone and internet for the first time and because there is no Target to go to, they are jumping into digital consumption.” Optometry sessions Audio notation.

China’s tough crackdown on technology weighs on EMQQ

While the Internet and Emerging Markets ETF ETF has benefited from pandemic shutdowns and the e-commerce boom in 2020 and 2021, rising inflation and economic uncertainty has taken growth momentum out of tech stocks and the fund is down 27.7% YTD-17 general. Jun. Concerns of a global economic slowdown and supply chain stress in key electronics components such as semiconductors have also made investors more fearful.

However, with half of the fund’s assets being weighted toward Chinese stocks, one of the major factors contributing to EMQQ’s year-to-date decline is the Chinese government’s regulatory crackdown on tech companies. This included a $2.8 billion antitrust fine Ali Baba [BABA] And the penalties for the video game giant Tencent [TCEHY].

At the same time, stricter data laws and the US Securities and Exchange Commission’s threat to delist a number of prominent Chinese companies have also hurt investor sentiment.

The Chinese government’s closure policy to prevent the spread of the new Corona virus has also hampered the economy and affected the production of electrical appliances and components. for example, apple [AAPL] Supplier Foxconn and Macbook maker Quanta halted production in Shanghai in March and April, with the latter reporting a 40% drop in revenue in March due to the city’s Covid-19 lockdown.

Can EMQQ revive?

Carter described EMQQ’s recent performance as a disaster, but believes that given the fundamentals for growth are strong, the slide is based more on fear than truth.

“There are no regulators anywhere in the world that can keep pace with technology stocks,” he said. It is not China because they are also under attack in Europe and the United States. China regulates laws but I think what they did is smart and practical for their economy.”

The fund reversed some of its losses since hitting a 52-week low of $25.55 on May 12, helped by easing lockdowns and more conciliatory language from the Chinese government on the tech sector.

“High-level rhetoric appears to be easing up on Internet companies, which is a boon for the beleaguered sector and Chinese stocks in general,” Louis-Vincent Jeff, chief economist at investment advisor Evergreen Javikal, wrote in a June 10 research note.

Improved outlook for Alibaba and Mituan properties

Launched in 2014, the Internet and e-commerce ETF in Emerging Markets has a total daily year-to-date return of -28.7% and total assets of $625.1 million as of June 17. About 53% of its holdings are in China, followed by 12% in India and 9.5% in South Korea. The fund’s largest holding is the Chinese online shopping platform Mituan [3690.HK] with 10.9%, followed by Tencent (8.8%), Alibaba (8.5%) and JD.com [JD] (8.2%).

Meituan’s share price is down 11.7% year-to-date through June 17, but is up 92.4% since its 52-week low on March 12, helped by growth in the food delivery business. Alibaba’s share price also rose 34% over the same period, buoyed by the announcement of a $25 billion share buyback program – the largest buyback ever made by Chinese tech stocks.

The news that China’s central bank has accepted the request of financial holding company Ant Group also helped improve investor sentiment, with the company partially owned by Alibaba. These positive developments could revive hopes of listing, which were torpedoed during the regulatory campaign. Alibaba’s name also appears on Morningstar’s list of stocks that are currently undervalued but have a strong competitive advantage. It reported that Alibaba and JD.com are both trading 51% below fair value estimates.

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