China's e-commerce behemoth, Alibaba, is gearing up to expand across borders, and one of its most recent plans is to invest significantly in India's e-commerce market, a sector that many believe will experience exponential growth this year. Such a move not only underscores the importance of e-commerce to the Indian economy, but also proves it's one of the greatest economic drivers across the emerging markets.
Although e-commerce has been talked about for a while, the sector is starting to really heat up now.
"The game changer was the emergence of cheaper mobile computing devices such as smartphones and tablets," said Michael Oh, portfolio manager of Matthews Asia Science & Technology Fund.
Before the advent of the smartphone, most Asian consumers, particularly those in emerging Asia, couldn't really afford the traditional devices needed to access the Internet. Now, however, "you are seeing the rapid rise of Internet businesses in emerging Asia especially in China, India and Indonesia and you can buy nice, mid-end smartphones for below $100 in China and India," Oh said.
That said, the overall penetration rate of Internet users in emerging parts of Asia still lags behind the more advanced economies like Korea and Japan, he said, which means there'll be a healthy growth in the years to come and great opportunity for e-commerce companies and for investors.
Given the growing importance of e-commerce, though, and the success of so many e-commerce companies throughout the emerging world, Kevin Carter, founder of Big Tree Capital, took the initiative to put together a unique index composed entirely of top performing emerging market Internet and e-commerce companies and recently, launched the corresponding ETF.
Even though companies such as Alibaba and Baidu are household names within the investment community, it's still not that easy for foreign investors to access them, Carter said, and that's mainly because they don't figure in the traditional emerging market indices. The EMQQ Index features 44 companies, many of which are Chinese, simply because "China is in the lead as far as e-commerce goes," said Carter, who chairs the EMQQ Index Committee. However, it also includes Indian companies such as Info Edge India and MakeMyTrip, and the Brazilian online company Bitauto Holdings, whose ADRs trade on the New York Stock Exchange. It also includes companies from South Korea and Russia, among others.
The EMQQ Index illustrates the fact that "though Alibaba is a big deal, there's a lot more going on in e-commerce and it's not just about Alibaba," Carter said. "Through our ETF, investors can also access e-commerce companies that are in frontier markets that they typically would not come across, because e-commerce easily spills across borders from emerging to frontier markets," Carter said.
