China has been a very busy country over the past several months, both economically and politically. While the nation’s economy holds a great deal of potential, the distrust of the Chinese government and some of its recent hard-handed tactics have put investors on their heels. The ETF Think Tank welcomed Kevin T. Carter, the Founder and Chief Investment Officer of EMQQ, whose firm helped launch the Emerging Markets Internet & E-Commerce ETF (EMQQ), to help offer his take on the current landscape.
Carter explains that China has been under pressure since February, although recent events have gotten the attention. He believes nothing has happened fundamentally, except that the Chinese government decided to go after the country’s fintech, e-commerce and education sector leaders. What happened with Didi, where the government announced that it was investigating the company’s compliance with cybersecurity laws, was what set things in motion and investors panicked. Some fears of Chinese intervention are overblown, but the backdrop of government distrust is at the core.
Some of what the government is trying to accomplish – making sure they have the appropriate rules and regulations in place and enforced for the benefit of their people – isn’t all that unreasonable, says Carter. He believes that the sector has grown 40% a year for the past decade and the regulations simply haven’t kept up. As a result, some companies weren’t following them. The idea that the government went after the education sector to ensure they were non-profit caught many people off guard and the market reacted.
On a positive note, Carter sees an exciting opportunity in the fact that a lot of people are still getting their first internet access, their first smartphone or their first computer. There’s still a lot of growth potential in the internet and fintech spaces, while the retail marketplace is also opening up to a wider audience. He believes that the story in India is very early, and that southeast Asia also looks very promising.
In terms of other opportunities, Carter brings up cryptocurrency and the EV market. China is obviously having its issues with cryptocurrency adoption, but there’s little question that the country has the potential to dominate other areas of the market. China is the most advanced nation in terms of e-commerce and tech of any country in the world. The growth rates in China are good, but they may eventually slow down. The future growth story will potentially come from India and Brazil.
Carter talks about how he views EMQQ and how investors might want to consider using it in a portfolio. His company, he explains, uses it as a satellite to complement a core emerging markets product. He believes that a 50/50 allocation between the two products sounds about right, in general, but notes that risk seekers may want to tilt their portfolios more towards higher growth opportunities. Those with long-term time horizons can really benefit from the benefits of compounding returns.
As the conversation wrapped up, Carter offered his final thoughts on where he sees U.S./China relations heading. He says we’re clearly in a tech war and it’s not going away. It’ll have its peaks and valleys, but he doesn’t think it’s going to change any time soon.
This week our guest will be Peter Boockvar, joining us to discuss inflation, re-opening, and the Fed. Sign up here.
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