To hear Big Media tell it, only a fool would bet on China right now.
After all, China is the source of the coronavirus that has spooked investors around the world.
Here in the U.S., the outbreak is receiving nonstop media coverage. It’s all over the TV and radio, newspapers and magazines as well as online news sites.
But for savvy tech investors focused on the long-haul, this could prove to be a great time to invest in China’s burgeoning e-commerce sector. This is a country with more than 893 million people online, according to Statista.
Even better if our investment goes beyond the world’s most populous nation and gives us access to other emerging markets.
Casting a Wide Net
Now then, please don’t think I’m making light of the situation. I realize that here in the U.S., officials have reported 21 deaths from Covid-19, the officials’ name for the virus.
But I think it pays to put that in perspective. It compares with roughly 18,000 for the common flu so far this season, according to the Centers for Disease Control and Prevention.
Now you know why I believe much of the market’s turmoil has been fanned by the media.
I’m not the only one who thinks so. Tesla Inc. CEO Elon Musk tweeted out over the weekend that the panic is “dumb.” By late Sunday, 1.6 million Twitter Inc. (TWTR) users had liked the tweet.
I bring this up because it is an example of common sense among average folks at a time when the media is going crazy – and helping to push stocks way down.
Yes, I do believe we could see an impact on economic growth, particularly in China for the first quarter that closes at the end of the month.
However, this may be a very good time to put in a long-term play on China’s burgeoning e-commerce sector. The journal eMarketer pegs the value of e-commerce in China last year at $1.93 trillion.
Expand that out to include other markets in the Asia Pacific region, such as
South Korea and the figure nearly doubles to $2.71 trillion. The area accounts for 25% of the world’s e-commerce, worth a stunning $29.7 trillion
Now you know why I think EMQQ The Emerging Markets Internet & Ecommerce ETF (EMQQ) is a great long term play on China and other emerging markets.
Indeed, the fund only investing in Internet and e-commerce firms based in those countries. EMQQ holds 40 stocks of which 75% are directly tied to Web-based operations.
Make no mistake. The emerging and frontier markets this ETF target are set for growth that is nothing short of explosive.
Consider that back in 2010, world consumption was split $12 trillion to $26 trillion in favor of developed economies. By 2025, the projection is a $30 trillion to $34 trillion split.
For their part, developed economies will grow by a respectable 25%. But emerging markets will roughly triple.
Another thing I really like about this fund is that it also gives us some geographic diversity as well. EMQQ has invested in firms based in Argentina, Brazil, India, Russia, and South Korea.
As you might imagine, EMQQ’s top holdings include Chinese e-commerce stars. We’re talking Alibaba Group Holding Ltd. (BABA), Tencent Holdings Ltd. (TCTZF), and JD.com (JD). But It also owns a number of lesser-known e-commerce stocks that are focused on emerging growth sectors. Take a look:
- Qihoo 360 Technology Co. Ltd. is one of my favorites in EMQQ. Qihoo is a homegrown Chinese cybersecurity company. And that’s a very big deal given the lack of trust between the US and China regarding cybersecurity. The Americans think Chinese software and hardware has spyware and the Chinese think the same of Americans. This makes Qihoo a winner for 1.4 billion Chinese and all of their devices.
- Bitauto Holdings Ltd. (BITA) offers internet content and online marketing services to China’s auto industry. A report by industrial consultants McKinsey & Company predicts that SUV sales will triple by 2020, although passenger cars will still make up the majority of the market. And China is expected to contribute 34% of overall growth in the sector over the next three years. North America is forecast at 14%.
- MercardoLibre Inc. (MELI) is the dominant online shopping and payments portal in Latin America, a region with roughly 620 million residents. It pioneered the concept of online auctions for Latin America back in 1999. The company began operations in Argentina but quickly expanded. Today, it operates throughout one of the world’s fastest-growing regions. Roughly 400 million Latin Americans are online today, which is about 100 million more than in the U.S.
- Naspers Ltd. (NPSNY) is the fund’s third-largest holding, but it is hardly known in the U.S. This firm provides a wide range of e-commerce related services and platforms from its base in South Africa to more than 130 countries. It’s now the largest company in Africa and the seventh-largest internet firm in the world.
As you can see, the fund takes a very broad approach and has cherry-picked some real winners. Not only that, but it’s been a surprisingly strong performer.
Based on the market’s close yesterday, the S&P 500 is off 10.9% from its February 19 closing high. During that period, EMQQ is off 7.25%.
Let me be clear on one thing. As much as I believe in this investment for the long haul, this is no time to throw caution to the wind.
Instead, I believe this is a great opportunity to begin with a small investment now and add to your position later. The idea is to invest for the long haul.
By taking this approach, you will be laying down a solid base and be poised to capture the huge potential of the web and e-commerce in high-growth emerging economies.
It’s the kind of forward-thinking perspective that really pays off when the market comes under intense pressure.
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Cheers and good investing,
Michael A. Robinson