Two investing concepts are on tear this year - emerging markets (EM) and technology. Powered by the twin tailwinds, the Emerging Markets Internet & Ecommerce ETF (NYSEARCA:EMQQ) - which measures the performance of the emerging market Internet and ecommerce companies - has surpassed the e-commerce giant Amazon.com Inc. (NASDAQ:AMZN).
The fund was up 37.2%, while AMZN has gained 27.1% on a year-to-date basis. EMQQ seems to be an overlooked option, as evident from its $52.2 million assets, while Amazon has a market cap of $455.4 billion.
Let's delve a little deeper and find out what makes EMQQ deliver an all-star performance this year and surpass a red-hot stock and a biggie like Amazon.
Potential of e-commerce in EM Bloc
The e-commerce bloc has bright prospects with the advancement of technology and Internet usage. The fast-expanding middle class, their rising income as well as huge population in countries like India and China point at still untapped e-commerce business potential in emerging markets. On the other hand, the developed market appears more mature.
Investors should especially note that the government in India has been goading citizens to go digital. This is because, in November 2016, the government surprised the nation with demonetization that led to serious cash crunch issues.
If this was not enough, a KPMG survey estimated that global e-commerce will double to $4.1 trillion by 2020 from $1.9 trillion in 2016. This is because consumers in densely inhabited countries like India and China like to shop online to evade swarming malls.
EMQQ's Solid Exposure to Chinese Tech Sector
China-based tech companies like Tencent (OTCPK:TCEHY) (8.0%), Alibaba Group Holding-SP (NYSE:BABA) (7.45%), Baidu (NASDAQ:BIDU) (5.5%) and JD.com (NASDAQ:JD) (5%) have considerable exposure to EMQQ. As per the source, Chinese e-commerce giant Alibaba intends to expand in underpenetrated markets like "India and South East Asia rather than compete directly with other players, such as Amazon, in the U.S."
The source went on to deliver the data revealed by a study conducted by Google and Temasek that "South East Asia's e-commerce market was estimated to be about $5.5 billion in 2015 and it is predicted to grow to nearly $90 billion by 2025."
Alibaba is yet to report its earnings results for the recently ended quarter. Baidu, however, released its financial results for the first quarter of 2017 in late April. The company beat on both lines. Management noted, "in the quarters ahead, we will intensify our efforts in applying AI to improve existing products and to accelerate the development of AI-enabled new business initiatives."
Alibaba stock has a VGM (Value-Growth-Momentum) of "B," and its Zacks Industry Rank is in the top 30%. Alibaba stock has a Zacks Rank #3 (Hold). Baidu's Zacks Industry Rank is in the top 26%. JD.com has offered stellar returns so far this year (as of May 9, 2017). The stock is up over 51%. The Zacks Industry Rank is in the top 30%.
Chinese e-Commerce Operators Use Drones Better?
Investors should note that Amazon's intention to deliver products to customers in the U.S. faster by using drones have so far been thwarted by "outdated regulations." On the other hand, JD.com is beating Amazon in this regard, having deployed drones already. JD.com recently declared "plans to build 150 drone stations in south-western Sichuan province alone," as per the source.
Amazon may be a winning stock, but EMQQ is a combination of several captivating stocks in the e-commerce field. As a result, it beat not only Amazon, but also the well-known U.S. tech fund Technology Select Sector SPDR ETF (NYSEARCA:XLK) (up over 14% YTD) and the Internet fund First Trust DJ Internet Index ETF (NYSEARCA:FDN) (up over 17% YTD).