Kevin T. Carter, founder and chief investment officer of the Emerging Markets Internet and Ecommerce ETF, tells Opto that large populations in markets like India, Pakistan and Latin America are leapfrogging technology generations and consuming like never before, which will spark unicorns in segments like ecommerce and financial technology.
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Kevin T. Carter’s firm has around $759m worth of assets spread across funds starting with the Emerging Markets Internet and Ecommerce ETF [EMQQ] and the newly launched Next Frontier Internet and Ecommerce ETF [FMQQ]. The distinction of the latter is that it excludes China among emerging markets.
Carter told Opto that “China’s ecommerce market is the most developed in the world by far. It’s way bigger than the United States.” He estimates that China’s market is four times the size of the remaining 45 emerging and frontier markets combined. In the EMQQ, therefore, this shows as an investment skew towards China. Yet, ecommerce already accounts for 30% of retail sales in China, whereas in other countries like India it is as low as 5%. The remaining companies thus have a higher growth potential. “I think you are bound to see higher growth rates beyond China, and a lot more room to run in terms of ecommerce adoption.”
This is because of a potent mix of internet access via smartphones, the convenience of doorstep delivery and a large population base. “These billions of new consumers are leapfrogging to digital consumption and driving what I believe continues to be the fastest growing sector in the world,” Carter explained.
An encouraging trend Carter has seen in South America, and more recently in locations like Pakistan and Bangladesh, is the domino effect of entrepreneurs turning to fund other ventures, which he says will result in proliferation of local unicorns.
“Pakistan, Bangladesh, these huge populations, these new consumers and entrepreneurs, are leaving Amazon or Facebook or Google and going back to their home markets and starting these new companies. And there’s hundreds and hundreds of unicorns, and I think we’ll see hundreds of IPOs in the FM QQ countries in the coming years.”
Similarly, as Carter recalls, there are hundreds of venture-funded startups in Columbia, and the “spirit of entrepreneurism” was palpable in his recent visit to the country. “That was something that I took away quite strongly.”
He also found it paradoxical that the adoption of financial technology in emerging markets appeared to be far ahead of developed areas like San Francisco.
2022 has been a rough year for the EMQQ and Carter because the fund hit a low and fell this month all the way to its opening price of $26 from more than seven years ago. “It’s been horrendous and it’s been particularly trying for me personally,” Carter said, though he added that this is owing to irrational fear. “I mean, the fundamentals, frankly, are fine.”
The first that comes to mind is the fear that Chinese companies listed in the US would need to delist because of regulatory warnings from the Securities and Exchange Commission. “So even though I’m convinced it doesn’t change the risk profile at all, we’re going to transfer all of our ADRs to Hong Kong listings, as that’s possible, just to appease people, even though it's something that they shouldn’t really care about.”
As for changes in regulations, Carter said this appears to be in line with what is happening the world over, but China appears to be grabbing more headlines.
The selloff has, however, resulted in some opportunities.
New Bank, for instance, signed Berkshire Hathaway as its last private investor before the IPO. At the time of the IPO the firm reduced the valuation by about 25 or 30%, Carter said, “and the stocks down another 30% since then, so it’s selling for less than half of what its valuation was six or eight months ago.”
To hear more insights from Kevin T. Carter, listen to the full episode on Opto Sessions.
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