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Alibaba HQ, Hangzhou, China The Future of Emerging Markets Presented by Kevin T. Carter April 2019
Alibaba HQ, Hangzhou, China
The Future of Emerging Markets
Presented byKevin T. Carter
April 2019
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Kevin T. Carter Mr. Carter is the Founder of The Emerging Markets Internet ETF (NYSE: EMQQ). He has been a featured speaker for ColumbiaBusiness School, Bloomberg, Guggenheim Partners, Morningstar and the CFA Society. Previously, Mr. Carter was the Founder &CEO of AlphaShares, an investment firm offering three China focused ETFs in partnership with INVESCO. These ETFs trade onthe NYSE with the ticker symbols CQQQ, TAO & HAO. Mr. Carter was also the Founder & CEO of Active Index Advisors acquiredby Natixis in 2005 and the Founder & CEO of eInvesting acquired by ETRADE in 2000. Mr. Carter began his career in 1992 withRobertson Stephens & Co.
Dr. Burton Malkiel
Dr. Malkiel serves as an Advisor to EMQQ. Dr. Malkiel is the Chief Investment Officer of WealthFront and a long time Professor ofEconomics at Princeton University. In 2002 he was a co-Founder and Chief Investment Officer of Active Index Advisors. He iswidely considered one of the pioneers of index investing and ETFs. He has served as a member of the Board of Directors ofVanguard, Dean of the Yale School of Management and as Chairman of the Princeton University Economics Department. Dr.Malkiel is also well known for his seminal work A Random Walk Down Wall Street. Dr. Malkiel holds B.A. and MBA from Harvardand a Ph.D. from Princeton University.
Richard KangMr. Kang is a Member of the EMQQ Index Committee. Mr. Kang has the experience of over 25 NYSE listed ETF launches and waspreviously the Chief Investment Officer of EGShares and Portfolio Manager of the Columbia Emerging Markets Consumer ETF(NYSE: ECON). Over his 20 years of buy-side experience, Richard has had senior roles at a hedge fund, fund-of-hedge fund,investment counseling firm, index provider and ETF issuer/managers. He sits on FTSE's Country Classification IndexingCommittee as well as the editorial board of Institutional Investors' The Journal of Index Investing, the only academic journal forthe indexing and ETF industry.
Linda H. Zhang, Ph.D.Dr. Zhang serves as a Member of the EMQQ Index Committee. She is the CEO of New York based Purview Investments, a firmspecializing in active ETF managed solutions and ETF innovation. Her career spans from quantitative analysis at Baring AssetManagement, multi-asset portfolio management at Blackrock and MFS, to leading the investment team at Windhaven. She is arecipient of Top Women in Asset Management 2015 by Money Management Executive and a co-founder of Women in ETFs. Sheholds B.A. from University of Regina, Canada, M.S. and Ph.D. in Finance from University of Massachusetts at Amherst.
EMQQ Team
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Kyle ParkerMr. Parker serves as the President of EMQQ. Prior to EMQQ, Mr. Parker worked at Progress Investment Management Co., the San Francisco based firm focused on minority and women-owned emerging managers. He previously worked at AlphaShares, an investment firm founded by Mr. Carter and Dr. Malkiel, offering Emerging Markets and China focused ETF’s in partnership with Guggenheim Investments. Mr. Parker holds a B.A. in Economics and B.A. in Philosophy from the University of California, Santa Barbara.
Lee Stapleton
Ms. Stapleton joins EMQQ as Vice President of Marketing. Prior to EMQQ, Ms. Stapleton founded two internationally successful impact campaigns promoting economic, social and environmental sustainability. Ms. Stapleton received a degree in Spanish, Nonprofit Management & Leadership Studies, and Public Administration, with a pooled concentration in Environmental Studies from the University of North Carolina Wilmington.
Jennifer ChampionMs. Champion joins EMQQ as Director of Marketing. Prior to EMQQ, Ms. Champion was an Investment Specialist at Baron Capitaland a Regional Director at Natixis Investment Managers. She joined Natixis when it acquired Active Index Advisors in 2005. Ms.Champion was the Director of Marketing for Active Index Advisors, which pioneered customizable, index-based and tax-advantaged investment strategies and was founded by Mr. Carter and Dr. Malkiel. Ms. Champion holds a B.A. in Sociology fromthe University of California, Santa Barbara.
Lin LiLin Li serves as an Advisor to EMQQ. Mr. Li is a Portfolio Manager at Huatai Securities, a Chinese investment manager based in Nanjing trading Chinese equities and index derivatives on mainland (Shanghai & Shenzhen) and international markets (Hong Kong and New York). Previously, Mr. Li was as an analyst for AlphaShares, an Emerging Markets investment firm located in San Francisco. He holds Master’s degree in Financial Analysis from University of San Francisco and a B.S. in Engineering from Chongqing University in China.
EMQQ Team
Latif NathaniMr. Nathani serves as an Advisor to EMQQ. He was most recently the CEO of eBay India. He grew the business from under $200M GMV in 2013 to nearly $500M GMV in 2016 and 5M+ customers. He exited with the sale of eBay India to Flipkart. Previously Latif co-founded eMemories.com and 2 enterprise businesses at Microsoft. He also led global product marketing at Symantec and named/launched Norton 360. Latif has 27 years of technology industry experience, including 15 years at Microsoft. Latif graduated with an MBA from City University and B.S. Computer Science from the University of Arizona in 1991.
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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
8
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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The Growth of the EM Consumer is THE Story
Source: Rostow stages of economic development, World Bank
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Problems With 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)
14Source: 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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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 $215 -17.90%
Increasing Smartphone Affordability
Source: IMF, World Economic Outlook database ,CapIQ, CB Insights
23Source: IMF, World Economic Outlook database ,CapIQ, CB Insights
INTERNET PENETRATION
772 million users
(55%)
Population in China1.4b people
331 million users
(25%)
Population in India1.3b people
Population in U.S.327m people292
million users(89%)
Smartphone Penetration by Country (2017)
CountrySmartphone
Users (MM)
Smartphone
Penetration
Total
Population
(MM)
United States 226 70% 326
Germany 55 69% 80
United Kingdom 44 69% 65
Russia 78 55% 143
China 717 52% 1,388
Japan 63 50% 126
Mexico 52 41% 130
Brazil 79 38% 211
India 300 22% 1,342
Indonesia 54 21% 263
Mobile Broadband = First Internet Connection for EM
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U.S. VC Funding EM Entrepreneurs
25Source: Big Tree Capital LLC, 2018 calculation is an estimate
Result #1 = Massive Revenue Growth (CAGR ~40%)$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
27Source: 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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Private Companies Inside of EMQQ - Didi
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Private Companies Inside of EMQQ - Jumia
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Taking Advantage of Concerns About Trade War and Recent Correction
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Recent Performance Correlated to the Trade War
1/2018 - U.S. imposes safeguard tariffs on washing machine and solar cell imports
3/2018 – Start of China trade war: Trump signs tariffs on Chinese imported steel and aluminum
11/2018 – G20 Summit in Buenos Aires marks the change in narrative to “constructive” talks with China
+34.5%*
2017 Avg YoY EMQQ Revenue Growth
+36.1%
2018Avg YoY EMQQ Revenue Growth
Performance as of Jan 1, 2017
2018 CY-29%
2017 CY+68%
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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 Index Historic Valuations (As of November 5, 2018)P/B P/E BEst P/E P/S P/CF Div Yld
Jun-09 4.88 27.63 20.83 5.37 18.76 0.37
Nov-09 6.82 43.49 24.02 7.56 24.55 0.29
Jun-10 6.29 39.03 21.59 7.27 28.01 0.27
Nov-10 6.39 28.70 21.57 3.72 20.34 0.14
Jun-11 7.05 39.40 23.32 4.06 18.77 0.13
Nov-11 3.36 21.78 18.55 2.74 16.74 0.41
Jun-12 3.49 22.52 17.91 3.13 16.63 0.93
Nov-12 3.29 21.98 17.44 3.29 13.63 1.15
Jun-13 4.07 24.88 20.17 3.23 17.14 1.26
Nov-13 5.68 38.31 27.83 4.26 22.01 0.51
Jun-14 6.04 29.34 26.60 4.19 23.93 0.22
Nov-14 5.20 33.29 30.87 4.25 26.54 0.22
Jun-15 5.38 28.83 29.21 4.63 23.82 0.25
Nov-15 4.39 33.85 28.98 4.11 22.49 0.22
Jun-16 3.59 37.59 26.78 3.27 21.18 0.19
Nov-16 3.06 31.57 23.82 3.44 17.68 0.22
Jun-17 3.92 39.89 26.66 4.04 21.89 0.20
Nov-17 4.19 45.73 26.47 4.37 28.40 0.18
Jun-18 3.56 36.60 24.49 3.64 24.81 0.39
Nov-18 3.00 27.76 20.16 2.85 20.97 0.30
Average 4.68 32.61 23.86 4.17 21.41 0.39
Data from Bloomberg and analysis from Big Tree Capital
*2018 Revenue is an estimated projection
40.7%
34.1% 35.0% 36.1%32.50%
4.96%
-3.24%
68.20%
-27.03%-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
2014 2015 2016 2017 2018E YTD
EMQQ Revenue Growth vs Annual Return
EMQQ YoY Revenue Growth % EMQQ Total Return
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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▪ Includes 57 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
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EMQQ Index Holdings (12.31.18)
Security Name Ticker Currency Weight Security Name Ticker Currency Weight
1 TENCENT HOLDINGS LTD 700 HK Equity HKD 8.00% 30 QUDIAN INC SPONSORED ADR CLASS A QD UN Equity USD 0.67%
2 ALIBABA GROUP HOLDING-SP ADR BABA UN Equity USD 7.50% 31 ROCKET INTERNET SE RKET GY Equity EUR 0.65%
3 NASPERS LTD-N SHS NPN SJ Equity ZAR 7.00% 32 SEA LTD SE UN Equity USD 0.64%
4 BAIDU INC - SPON ADR BIDU UW Equity USD 6.50% 33 COM2US CORP 078340 KQ Equity KRW 0.54%
5 NETEASE INC-ADR NTES UW Equity USD 6.00% 34 LEXINFINTECH HOLDINGS LTD LX UQ Equity USD 0.52%
6 MERCADOLIBRE INC MELI UW Equity USD 5.50% 35 CHINA LITERATURE LTD 772 HK Equity HKD 0.52%
7 NAVER CORP 035420 KP Equity KRW 5.00% 36 YIRENDAI LTD - ADR YRD UN Equity USD 0.48%
8 CTRIP.COM INTERNATIONAL-ADR CTRP UW Equity USD 4.50% 37 PPDAI GROUP INC PPDF UN Equity USD 0.45%
9 JD.COM INC JD UW Equity USD 4.50% 38 MEITU INC 1357 HK Equity HKD 0.42%
10 YANDEX NV CLASS A YNDX UW Equity USD 4.12% 39 UXIN LTD UXIN UW Equity USD 0.41%
11 NCSOFT CORP ORD 036570 KP Equity KRW 3.25% 40 QIWI PLC-SPONSORED ADR QIWI UW Equity USD 0.35%
12 AUTOHOME INC-ADR ATHM UN Equity USD 2.66% 41 BITAUTO HOLDINGS LTD ADR BITA UN Equity USD 0.35%
13 58.COM INC WUBA UN Equity USD 2.59% 42 21VIANET GROUP INC VNET UW Equity USD 0.34%
14 KAKAO CORP 035720 KP Equity KRW 2.40% 43 SOGOU INC SOGO UN Equity USD 0.31%
15 IQIYI INC IQ UW Equity USD 2.35% 44 BAOZUN INC BZUN UW Equity USD 0.30%
16 MAIL.RU GROUP-GDR REGS MAIL LI Equity USD 2.24% 45 CAFE24 CORP 042000 KQ Equity KRW 0.28%
17 MOMO INC MOMO UW Equity USD 2.22% 46 HUYA INC-ADR HUYA UN Equity USD 0.28%
18 SINA CORP SINA UW Equity USD 2.05% 47 FANG HOLDINGS LTD SFUN UN Equity USD 0.27%
19 DELIVERY HERO SE DHER GY Equity EUR 1.87% 48 NHN ENTERTAINMENT CORP 181710 KP Equity KRW 0.26%
20 51JOB INC-ADR JOBS UW Equity USD 1.56% 49 CHONG SING HLDS FINTECH GRP LTD 8207 HK Equity HKD 0.25%
21 KINGDEE INTERNATIONAL SFTWR 268 HK Equity HKD 1.26% 50 DESPEGAR.COM CORP DESP UN Equity USD 0.22%
22 YY INC-ADR YY UW Equity USD 1.18% 51 PC HOME ONLINE INC 8044 TT Equity TWD 0.21%
23 CVC BRASIL OPERADORA E AGENCIA CVCB3 BS Equity BRL 1.17% 52 SECOO HOLDING LTD SECO UQ Equity USD 0.19%
24 WEIBO CORP WB UW Equity USD 0.93% 53 CHANGYOU.COM LTD CYOU UW Equity USD 0.17%
25 VIPSHOP HOLDINGS LTD VIPS UN Equity USD 0.89% 54 HC GROUP INC 2280 HK Equity HKD 0.16%
26 B2W CIA DIGITAL BTOW3 BS Equity BRL 0.88% 55 AFREECATV CO LTD 067160 KQ Equity KRW 0.13%
27 ZHONGAN ONLINE P&C INSURANCE C 6060 HK Equity HKD 0.82% 56 CHEETAH MOBILE INC - ADR CMCM UN Equity USD 0.11%
28 INFO EDGE INDIA LTD INFOE IS Equity IRN 0.72% 57 SOHU.COM INC SOHU UW Equity USD 0.11%
29 MAKEMYTRIP LTD MMYT UW Equity USD 0.70%
