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)

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

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

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

kparker@emqqindex.com

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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