New Emerging Internet ETF Fills Big EEM Void

November 21, 2014

Beyond China: Latin America, Russia & Korea

For example, MercadoLibre is an online auction site and the largest e-commerce company in Latin America. The NYSE-listed firm is based out of Argentina, but it’s more of a Latin American consumer play. It’s got a major foothold in practically every Latin American country, and it gets a significant portion of its revenues from Brazil and Mexico. To be clear, MercadoLibre is not in EEM and VWO.

Moving on to Russia, local search engine Yandex is often dubbed the “Google of Russia.” The NYSE-listed firm has roughly a 60 percent market share of online search in Russia. According to internetlivestats.com, Russia’s Internet penetration is estimated around 60 percent, leaving a lot of potential for Internet growth.

South Korea Distinctions

EMQQ carries a hefty 11 percent weighting to South Korean firms. Korea is an interesting case, because the inclusion/exclusion of Korean stocks has more to do with country classification, rather than security assignment to an index.

Nonetheless, VWO specifically excludes South Korea because FTSE has classified the country as developed. EEM still includes South Korea as an emerging market, so the iShares fund does include locally listed South Korean Internet firms.

India, The Big Elephant

In terms of sheer potential for Internet expansion, India probably tops the list. It’s a country with a population nearing 1.3 billion people, but less than 20 percent of Indians currently have Internet access, according to internetlivestats.com.

Of course, the key word here is “potential.”

Investors have been frustrated for years at the snail’s pace of Internet expansion in India, the world’s second-most-populous country. Yet you have to ask yourself: How long will India stay at a 20 percent penetration rate as more Indians get access to smartphones?

There are only a handful of Indian Internet companies traded at the moment. EMQQ only holds two of them, but it’s poised to include more of them as they undergo initial public offerings.

Immediately coming to mind is Flipkart, an “Amazon-esque” online retailer and India’s largest e-commerce company. Even if Flipkart does an IPO, should it choose to list shares in the U.S., it may encounter similar issues that kept Alibaba out of MSCI and FTSE-based indexes.

That said, MSCI is currently consulting with investors on whether or not to include these “offshore” listed companies into their flagship indexes. The consultation, which ends on Nov. 28, could potentially lead to a methodology change and the eventual inclusion of these companies into EEM.

 

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