The ETF EMQQ (ETC) replicates a market capitalization-weighted index of companies operating Internet-related businesses in emerging and frontier markets.
EMQQ is a specialized fund comprised of emerging market Internet and technology stocks, exclusively listed in the United States. These companies are generally specialized in online sales, e-commerce and gaming. Unsurprisingly, Chinese companies represent a significant part of EMQQ's weighting. The fund is weighted according to market capitalization, but with a limit of 8% for each security at the time of the reconstitution of the list in June and December, and is quite concentrated on the ten most important securities, in particular Tencent, Alibaba and Baidu.
Fees are 0.86% and AUM are $ 365M. Replication is direct and there is a dividend policy on an annual basis.
Alternative ETFs: N / A
Index & components
EMQQ gives access to 43 specialized Internet and e-commerce securities, which originate from China for 65%, South Korea for 11%, Russia for 10% and South Africa for 6% but which also include companies from India, South America, the Middle East and Eastern Europe.
The top 10 companies account for nearly 60% of the market capitalization of the index, which includes the 3 heavyweights Alibaba, Tencent and Baidu whose market capitalization is just like the GAFAs of several hundred billion dollars. Companies selected in EMQQ are required to engage in e-commerce or Internet activities and include search engines, online retail, social media, online video, electronic payments, online gaming, and online travel activities. In 2025, the consumer society will reach 4.2 billion people against 2.4 billion in 2010 and 1.2 billion in 1990.
Consumption in emerging countries will then represent 30 trillion dollars - almost half of the total world consumption. The transformation of purchasing behavior through the use of the Internet is deeply felt in emerging markets, whose embryonic middle classes are developing rapidly. The falling costs of smartphones and bandwidth allow for increasing internet access in developing countries, both in rural and urban areas. Today, there are about 2 billion smartphone users worldwide. By 2020, this number is expected to double to over 4 billion, which will transform purchasing behavior, which should in the first place allow e-commerce to benefit from growth in emerging markets consumption. Due to a relatively undeveloped retail sector in emerging markets, it is easy to imagine that online sales could represent a larger proportion of retail sales in emerging markets than in developed economies.
The vast majority of emerging market consumers do not own cars or computers, do not shop in supermarkets, and do not have an internet connection. E-commerce companies therefore allow emerging-market consumers to "jump" a step, switching directly to next generation consumption from a smartphone.
Latest developments
EMQQ has recorded an increase of 75% since the beginning of 2017, following a long stagnation phase between 2014 and 2016. This increase is primarily related to the impressive track record of the large Chinese companies Alibaba, Tencent and Baidu. Recently, Tencent is the first Chinese group to enter the highly closed club of high-tech companies exceeding $ 500 billion of market capitalization. A club hitherto solely composed of US companies like Facebook (520 billion), Amazon, Microsoft, Apple or Google. Wechat Messaging now has 980 million active users per month and is expected to break the billion mark by the end of the year. Tencent has made this instant messenger, installed on just about every mobile phone in China, a platform for entertainment and games stimulating all of its activities.
EMQQ is thus for the moment largely a bet on the Chinese consumer, which also implies a high exposure to the economic cycle of China. But other giants could also emerge in other parts of the world. It is therefore a double challenge, both on a heavy technological trend but also on the development of the economy of emerging countries and its consumers.
