00:00I am joined by Kevin Carter, founder and chief investment officer of EMQQ Global.
00:05Kevin, thanks so much for joining us.
00:08Thanks for having me.
00:10So, Kevin, you're looking for investment opportunities outside of the U.S.,
00:14specifically in emerging markets.
00:16What's driving this so-called great confluence of growth in emerging markets?
00:21Well, basically, you know, emerging markets is where most of the world's people live,
00:26about 85 percent of the world's people.
00:29And their incomes are going up.
00:33Their economies are growing faster than the developed world.
00:35And that's, you know, creating a whole wave of new consumers that want all of the things we have,
00:41food, you know, better clothing, air conditioners, vacations, cars, et cetera.
00:46But what is the best part of the story is that those six and a half billion new consumers
00:51are also getting their first ever computer, basically today.
00:56And it's not a desktop computer and it's not an Apple product.
00:59It's an Android-based smartphone that gets, you know, more affordable and better every year.
01:04And when those six and a half billion new consumers get that first computer,
01:09they're also getting the Internet for the first time.
01:11And because they haven't had, you know, the sort of evolutionary growth of these things that we've had,
01:20they're going from zero to 100.
01:22And it's created what I believe is the fastest growing sector in the world over the last 10 years.
01:27And going forward, the story still looks quite good.
01:32Well, talk to me about how getting their hands on these mobile phones or computers, as you're saying,
01:39just basically leapfrogging over the computer to go straight to mobile phone, is creating these new opportunities.
01:46What sort of opportunities will it create?
01:48Well, it's, you know, a lot like we've seen in our own world, you know, in the last, you know, 25 years,
01:55since, you know, people started to get personal computers and get the Internet.
01:59The FAANG stocks, you know, took over our lives and our stock market.
02:03And now the same thing is happening in China, India, Brazil, etc.
02:07And so it's, you know, it's things like social networks, it's food delivery, it's online gaming.
02:16It's, again, all of the sort of things we see in our own world, but it's the localized version.
02:21So it's the, you know, the Amazon.com of Brazil, which is called Mercado Libre, M-E-L-I.
02:28In India, it's a company called Eternal, which has three different businesses,
02:32one of which is sort of the, you know, the DoorDash of India, food delivery.
02:36So same sort of things we've seen take over our world are arriving in all of these other countries,
02:44the emerging markets.
02:48Sticking with India, you've called India the perfect emerging market.
02:53What makes it stand out from others right now?
02:57Well, India, it really is the perfect emerging market.
03:00If you look on paper, it's not only big, it's the biggest emerging market.
03:05If you leave out China, India is bigger than all of the other emerging markets combined.
03:11It's growing.
03:12It has the best demographics.
03:15It has the fastest growing GDP.
03:16And just as we saw in China over the last 20 years, India has now got a booming consumer market.
03:23And it's still very early.
03:26When you add in the human capital that India has, a tech sector that's older than I am in India as well,
03:34you're really never going to find anything else like it.
03:38So the India story looks incredibly compelling.
03:40It's also the world's largest democracy and a pretty well-functioning democracy.
03:45So we're in the earliest innings in the India growth story.
03:49And I think most people would be shocked to realize how digitized India's economy has become in the last decade,
03:56largely because of a significant digital public infrastructure push that has really digitized the financial system.
04:03How are you factoring in tariffs or tariff uncertainty, really, when you think about investing in emerging markets,
04:11specifically in India?
04:12Do you think that they'll help or hurt?
04:14Because I could see how India might benefit as a result of companies shifting supply chains away from China.
04:19But President Trump has also threatened additional tariffs on brick countries where India falls.
04:25So how are you thinking about tariffs?
04:27Sure.
04:28Well, you know, one of the good news about the sector we invest in, the Internet sector,
04:32is it's almost all domestic consumption driven.
04:34I mean, it's not a lot of export revenue in our portfolios, almost none, frankly.
04:42But the tariffs are, you know, they're going to affect pretty much every country in the world in a number of different ways.
04:47And India, I think many people think will actually benefit from all of the tariff action that's going on.
04:55I mean, but remember, before the tariffs kind of came into the picture, there was already a pretty significant move to diversify supply chains,
05:05to not be so dependent on China for manufacturing.
05:10So the China plus one, a number of different names to this idea.
05:13But India has been and will continue to be a beneficiary of the efforts to, you know, move production from China.
05:24And that's not going to, the tariffs will impact that.
05:28But I don't think much.
05:29And I think the net may be, in fact, be positive for India.
05:32So let's talk about how to actually invest in these emerging markets.
05:36You mentioned some of the companies that could be beneficiaries.
05:40But in your notes, you say traditional emerging market indices are flawed.
05:45I know you have some of your own ETFs.
05:47But tell me, why are traditional EM indices flawed?
05:52Well, if you look at the returns of emerging markets over the last 10 years,
05:55they've basically had no return for investors, and that's because they have had no revenue growth or no earnings growth.
06:03And the biggest problem in the traditional index is the traditional, you know,
06:08vanguard, iShares sort of emerging market approaches is the state-owned enterprises.
06:13There's all these government-owned banks and oil companies in places like China and Brazil and so forth.
06:20And they're not trying to grow their earnings.
06:22I mean, they're not really for investing, but they are public.
06:25They are about 25% of the traditional indexes.
06:29And I don't think anyone's ever going to make money in those companies because they, again,
06:34they don't try to grow their earnings, which is what makes companies more valuable.
06:40And so it's really targeting the new age economy, not the legacy economy, not the government-owned,
06:47you know, oil companies that are not just inefficient, but almost always have some corruption involved.
06:53And the real tip of the spear is this emerging markets internet story where you have, you know,
06:59entrepreneurs that, you know, have gone to the best schools in the world.
07:04A lot of the founders of the emerging market internet companies have gone to, you know, colleges like Harvard.
07:09And they go back home and they start an internet company and they get funded by U.S. institutional investors,
07:15which certainly it doesn't guarantee better corporate governance, but it's a pretty big head start versus things like Petrobras in Brazil.
07:23So it's really, if you want to capture the growth in emerging markets,
07:29there's no doubt that the best part of it is the emerging markets internet sector.
07:33And we have three different versions of the strategy.
07:36EMQQ tracks the entire emerging markets internet sector, including China.
07:43FMQQ also on the NYSE tracks an index of ours that is ex-China.
07:49So it's the same thing as EMQQ, but without China.
07:52And then we have India only, an index INQQ that tracks just the Indian internet sector.
07:59How are you thinking about China right now, given its sort of fragile relationship with the United States?
08:09Well, look, China's been as out of favor as you could possibly be.
08:14I mean, China became, quote unquote, uninvestable to a lot of investors, which was, I think, you know, silly.
08:21And I think that the things that led to that were completely misunderstood.
08:25I mean, the Chinese government isn't trying to kill the internet.
08:28They do have to regulate.
08:30And, you know, when the Europeans regulate or the U.S. regulates or finds Google, you know, people don't run for the exits.
08:37But people are so afraid of the Chinese government, they think that they've, you know, coming to steal your money.
08:43And now I think that played out, all of the fear.
08:47And we've had a pretty good, you know, comeback in the Chinese internet names.
08:52And I think, you know, the reality is, if you step back and look at China now, it's essentially the most advanced country in the world.
09:04I mean, they dominate electric vehicles.
09:08They dominate solar.
09:09They are catching up very quickly in biotech.
09:15They dominate shipbuilding.
09:17So pretty much across the board, China has, in the last decade, really advanced.
09:25And if you look at the valuations, the companies are incredibly cheap.
09:30One of the companies in China that I've, you know, been talking a lot about in the last, you know, couple months is Baidu.
09:36Baidu, which is the Google of China, you know, has the search engine.
09:40It's also the Waymo of China.
09:43It has a self-driving car business that's about the same size as Waymo in the United States.
09:50But it has an opportunity that would appear to be significantly larger.
09:54We have nine cities with a million people in the United States.
09:58China has 150 cities with a million people.
10:03They have great roads and infrastructure, all of which is important for self-driving vehicles.
10:08They have a government that is supporting and pushing autonomous vehicles.
10:15And so, and if you look at the valuation of Waymo, which some people in the U.S. have said might be worth as much as $150 billion,
10:24well, Baidu's entire market cap is only $30 billion, and they have $15 billion of cash.
10:29So, you know, I think that, I think China's, the worst days for Chinese stocks, I think, has passed.
10:39And if you, you know, just look at the last 24 months, the last couple of years, you know, they've done quite well.
10:46And they're still very, very cheap relative to almost any other equities in the world today.
10:52Just finally, there may be some people watching that just say, emerging markets are too risky for my portfolio.
11:03What do you have to say to them?
11:06Well, look, the world's a risky place.
11:08We, you know, there's a lot of risk in emerging markets.
11:11We saw what happened with Russia, which used to be an emerging market.
11:14Now it's a standalone market.
11:16But this, you know, this is where the growth is going to be in the future, and it's happening right now.
11:25And, again, I'm not endorsing the, you know, broad traditional approaches because you still have all of these state-owned enterprises.
11:34And, look, the reason that stocks go up in the long term is because they increase their earnings, right?
11:41The only reason the company has value is because it makes profits for the people that own the company.
11:47And the broad indexes may not be very good at growing their earnings, largely because of these government-controlled banks and oil companies.
11:56But these internet entrepreneurs funded by, you know, investors like Sequoia, this is still in the earliest innings.
12:03I mean, this is a 30-year, this great confluence of three, you know, megatrends is a 30-year story.
12:11The first third of that was essentially China.
12:15And you saw what happened with Alibaba and Tencent.
12:18Their businesses have had massive, massive growth.
12:21They won't grow as fast in the future.
12:23But now the spotlight is on India where that growth rate can be significant and it can be, you know, a 20-year story of growth that I am confident will happen in India.
12:35All right.
12:36We will leave it there.
12:37Kevin Carter, founder and chief investment officer of EMQQ Global, thank you so much.
