India's Economy Topping China May Boost EMQQ ETF

India will be the biggest part of the emerging-markets story for the foreseeable future, surpassing China for market dominance, says Kevin Carter, founder and chief investment officer of EMQQ Global. 

India has all the hallmarks of what makes emerging-markets popular with investors-large, and young populations that drive consumption and growth. It also has a sophisticated digital infrastructure that rivals any other country.  

He refers to India’s decision made several years ago to create a digital identification system for its citizens, and to develop a universal banking system to bring its largely unbanked population into a digital financial system. India added an instant payments system, and the country has the lowest-cost 5G cellphone data as well. The digital IDs can be used as both government IDs and by businesses which is quickly modernizing India’s economy. 

“India’s story can’t be matched at this point. They have human capital that you’re not going to find in any other country,” he says, noting the country’s sharp growth in the number of startups, from 500 seven years ago to over 120,000 now. 

EMQQ Global invests in emerging-market internet companies, and its first exchange-traded fund, the $374 million Emerging Markets Internet & Ecommerce ETF (EMQQ) recently celebrated its 10-year anniversary. Year-to-date it is up 21.4% versus and up 4.4% on a 10-year annualized basis.  

EMQQ reflects India’s market growth as well. When EMQQ debuted, it only comprised 1% of the fund’s weighting, Carter says, but now it’s 16.5%. China is 37%.  

While Carter is bullish on India, there are risks as well. Much of India’s development stems from pro-business pushes by Prime Minister Narendra Modi. Modi was reelected this year, albeit without the single-party majority he achieved in his previous two elections. If he were voted out of office those directives could change.  

India Stocks Are Pricey

Indian stocks are expensive. Price-to-earnings valuations for the biggest Indian stocks, as tracked by the broader emerging-market indexes, are high, even when looking at price-to-earnings-growth ratio.  

He is also closely watching how U.S. bribery charges against Gautam Adani unfold for the potential impact on the broader market.  

Emerging markets have been pressured lately on worries about tariff threats from President-elect Donald Trump. While that could cause short-term gyrations, Carter thinks India’s growth will continue since much of it is happening domestically.  

“What's happening in India is going to happen in India, and there's not a lot that Trump or anyone else could really do to affect that, at least in the mid-to-long term,” he says.