Emerging Markets Ecommerce Expected To Increase

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Includes: BABA, EMQQ, MELI
by: Kevin Carter
Summary

Ecommerce in India fueled by increasing access to the internet via smartphones.

Southeast Asia to benefit from younger population and venture cap culture.

Latin America to benefit from growth in Brazil and Mexico.

Ecommerce in developed countries like the United States has become second nature to consumers. A recent research report from Zacks highlighted that, as of June 2018, there were 95 million Amazon Prime (NASDAQ:AMZN) subscribers in the United States. While China is still classified as an emerging or developing economy, ecommerce has taken hold there also as evidenced by the rise of ecommerce giant Alibaba (BABA) among many others.

Zacks, in its report, highlighted the attractive opportunities for continued growth in ecommerce in many other emerging markets. Quoting the World Trade Organization, the report noted that more people in less-developed countries are being able to access the internet, day by day.

Access to ecommerce is available through larger retail and ecommerce companies such as Alibaba, MercadoLibre (MELI), and Walmart (WMT) which operate ecommerce platforms in regions such as India, Southeast Asia, and Latin America.

India

Zacks noted that since 2015, the amount of internet users increased almost ten times from a decade prior. According to the International Brand Equity Forum (IBEF), the Indian ecommerce market is expected to grow to US$200 billion by 2026 from US$38.5 billion as of 2017. Much growth of the industry has been triggered by increasing internet and smartphone penetration. IBEF expected India’s internet user base to increase to 829 million by 2021 from 445.96 million in 2017, which may help ecommerce to continue to expand.

Ways to Gain Access to Indian Ecommerce: Flipkart (FPKT) is the major ecommerce company in India, offering over 80 million products in more than 80 different categories, according to Zacks. During 2018, US retailer Walmart (WMT) acquired a majority stake in the company. Number 2 ecommerce company, Snapdeal (DEALS), counts Alibaba as one of its investors, according to crunchbase. Paytm is India's largest leading payment gateway that offers comprehensive payment services for customer and merchants, according to its website. According to The Economic Times, Alibaba and its Ant Financial affiliate own a majority stake in One 97 Communications, Paytm’s parent firm.

South East Asia

Citing TechinAsia, Zacks reported that there are over 330 million internet users in the South East Asia (SEA) region. With a younger population, demographics are favorable for growth in ecommerce in the region. Zacks notes that in countries like Singapore, Malaysia, Indonesia and the Philippines, mobile commerce has grown by almost 20% as the average Southeast Asian spends about 140 minutes online shopping every month. Ecommerce revenue is projected to grow to $200 billion by 2025.

With a young demographic and an economic culture that values start-ups, SEA may present attractive investment opportunities in the future.

Alibaba continues to invest heavily in ecommerce in the SEA region through its Lazada platform.

Latin America

Although behind the curve relative to other regions, Latin America is making strides to catch up, according to Zacks which notes that Brazil and Mexico are the two top largest countries in Latin America that have doubled in size in terms of ecommerce. Citing research from DigitalCommerce360, Zacks noted that three-quarters of Mexico’s online population shopped online during 2017.

One main issue plaguing Latin America are differences in payment methods across the countries. Since the region has a very large underbanked population, most consumers use cash payments. This may make it difficult to use e-commerce if the only way to pay is through cash. Yet, Zacks noted that ecommerce revenue is projected to reach $118 billion by 2021.

MercadoLibre is one of the largest publicly traded ecommerce companies in Latin America. MELI benefited early on from eBay’s 19.5% stake in the company. eBay has since sold that stake, but the companies still collaborate on ecommerce initiatives. MELI benefited from its tutelage under eBay (NASDAQ:EBAY) which helped it set up its own payment system similar to eBay’s PayPal.

Summary

Ecommerce has experienced strong growth in emerging markets. Factors such as favorable demographics and a large population just gaining internet access via smartphones signal potential growth in the future.

The Emerging Markets Internet & Ecommerce ETF (EMQQ) invests in companies with exposure to the potential growth of ecommerce in emerging markets such as India, South East Asia, and Latin America.

Disclosure: I am/we are long BABA, MELI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am the founder of the Emerging Markets Internet and Ecommerce Index, which is licensed to Exchange Traded Concepts and serves as the basis for the Emerging Markets Internet and Ecommerce ETF (EMQQ). I manage an Emerging Markets Hedge Fund that is sometimes long constituents of EMQQ and myself and my family are long EMQQ.