This highly populated country is growing twice as fast as the United States. Plus, this global economic powerhouse keeps beating forecasts.
Yet over the past two years, one analyst after another – except for yours truly – has sounded the alarm and told investors to stay far, far away.
I’m starting to think that Wall Street just doesn’t understand China – or Frontier Investing… at all.
Are we even looking at the same data?
China just saw first-quarter GDP growth rate of 6.9%
That was its fastest pace of economic expansion since the third quarter of 2015… it was more than 5% above the nation’s own forecasts… and it came at a time when President Donald Trump was still blaming the world’s most populous country for unfair trade programs.
As impressive as this growth sounds, it misses “our” big picture – that the “Road to wealth is paved by tech.”
Some of China’s web leaders are growing 10 times faster than the nation’s GDP.
That’s a key moneymaking trend we want to be in on.
This Play Is Trump-Proof
When it comes to tech investing, China is indeed a fertile playing ground.
Nearly one-third of the nation’s 1.3 billion people have smartphones with web access.
Fact is, mobile spending is rising at a double-digit pace and accounts for half of all of China’s e-commerce, according to eMarketer. That’s more than twice the 22% mobile shopping rate in the United States, where most of us still shop online from our computers.
This has served as a major boon to China and its mobile-centric society. It also means this sector is all but immune from the direct effects of any tariffs President Trump might slap on Chinese export.
Add it all up, and China remains a great market for Frontier Investing. Besides the legal cannabis market, that includes cryptocurrencies, rare earths, micro-cap biotechs, and emerging economies.
Yes, China is further along than places like India or Vietnam, but it’s still on the Frontier. Only 19% of its people have entered the middle class.
And so we see great long-term trends that bode well for China… for its people… for its digital tech leaders…
And for its investors…
A Focused Play
The clear pure play for this huge and growing “Trump-proof” sector is Emerging Markets Internet & Ecommerce ETF (NYSE Arca: EMQQ).
In this fund, you’ll find a “who’s who” of Chinese tech pioneers.
Take Weibo Corp. (Nasdaq: WB) as an example. More than 100 million people use this social-media platform, which aims to follow all the revenue-boosting tricks that were smartly pursued by Facebook Inc. (NYSE: FB).
Boosting revenue from each user has helped this firm juice its sales by nearly 1,000% over the past four years. Sales are on pace to reach $1.33 billion by next year. China’s rising middle class ensures strong growth for years to come.
Momo Inc. (Nasdaq ADR: MOMO) is another holding in this fund that’s seeing supercharged growth. Sales have risen at an astounding 570% pace over the past three years, and they should more than double in 2017.
What started as a social-media firm has become an all-purpose platform.
For example, Momo is the fastest growing major streaming video site in China, an especially profitable niche. Its instant-messaging platform is also quickly winning converts.
Almost every part of the Chinese economy is getting a digital makeover. Auto sales, for example, are now sharply boosted by the online convenience provided by firms like BitAuto Holdings Ltd. (NYSE: BITA).
This firm profits from the world’s fastest-growing car market in three ways.
- Its popular website is a key locale for car ads.
- Dealers pay hefty fees to subscribe to its sales network
- And the firm reaps a slice of profits on every sale made on its site.
BitAuto’s sales had not even reached $100 million by 2011. This year, that sales base will shoot past $1 billion.
You’ll also find Baidu Inc. (Nasdaq: BIDU) – the “Google of China” – in this fund. The firm’s highly profitable search engine, which accounts for 90% of China’s online search advertising market, is often the first page to be launched when Chinese consumers go online.
Sales have been growing at a 45% average clip in recent years – and should keep growing quick as more Chinese consumers move into the middle class and spend more time on line.
Alibaba Group Holding Limited (NYSE: BABA) is another core EMQQ holding. This firm is even more dominant in China than Amazon.com Inc. (Nasdaq: AMZN) is here in the United States. Alibaba’s platform is home to more than 75% of China’s e-commerce, divvied up through a series of distinct portals.
Alibaba has 650,000 companies registered on its website. This includes major chains like Target Corp. (NYSE: TGT), midsized chains like Calvin Klein Inc. and Coach Inc. (NYSE: COH), and more than 500,000 small-business sellers.
Not Just China
EMQQ also provides exposure to other fast-growing regions.
Mercadolibre Inc. (Nasdaq: MELI), for example, is its seventh-largest holding. It’s the largest provider of e-commerce and mobile digital payment platforms in Latin America, a region that is home to more than 600 million people, many of whom are entering the middle class.
In 2016, Mercadolibre pushed 40% more goods through its site than the year before, and a similar spike is expected this year. Unlike Amazon’s famous growth-now-and-profits-later business model, Mercadolibre is already quite profitable. Earnings per share should rise more than 30% this year and next… approaching $6 by then.
Launched in 2014, EMQQ has gained 20% over the past year. I typically tell investors not to buy ETFs with an expense ratio of more than 0.6%. But despite this fund’s 0.86% expense ratio, it’s worth it. That’s because it’s run by a strong fund manager named Kevin Carter.
Carter has shared his insights with me from time to time and is committed to staying targeting the top e-commerce trends in the best emerging markets.
He’s is clearly bullish on the road ahead. He cites a study by McKinsey & Co. that says by the year 2025, annual consumption in emerging markets will reach $30 trillion. As far as he’s concerned, that represents “the biggest growth opportunity in the history of capitalism.”
Let’s be clear. This isn’t the kind of fund you trade in and out of. If you want to get on the road to wealth, you want to own it for the long haul. The best way to gain exposure is to build a position over time, adding to the position when the fund’s price dips.
EMQQ trades at just $28.43, and the fund manages $44 million in assets. If it rises at just one-third of the 45% growth rate of the above-noted key holdings, that would still give us 15% gains – each and every year.
It’s a great hybrid investment. It’s clearly focused on growth, but the fund manager is focused on the long haul, meaning this is also a great foundational play.
One you can use to put together a retirement fund – or save up for a dream vacation.
Of course, China isn’t the only emerging economy worth taking a look at.
So early next week, we’ll dig up a hidden way to invest in another one of the globe’s fastest growing frontiers…
But I’ll see you back here first on Friday with something special.
See you then.
- Strategic Tech Investor: The Road to Wealth Is Paved by Tech.
- Strategic Tech Investor: In Tech Investing, Look for Opportunities Still on the Frontier.
- Strategic Tech Investor: When It Comes to ETFs, Keep Your Eye on These Three Metrics.