00:01 Speaker A
US stocks have been on a tear as of late closing out their strongest third quarter since 2020. That might put valuations out of reach for some investors. My next guest says to find growth, look outside the US as international and emerging markets are rebounding. Let's bring in Kevin Carter, EMQQ Global founder and CIO for this week's ETF report brought to you by Invesco, QQQ, and indeed EMQQ is an ETF that tracks the emerging markets. So, we've seen it rise about 34% this year. What has changed this year? Has it been, you know, is it um the sort of sell America trade that came into the four earlier this year that sort of catalyzed people to say, oh yeah, there's a whole world out there that's actually doing okay?
00:54 Kevin Carter
Well, I think it was exactly that. I mean, obviously the US stock market's done very well for the last decade, led largely by technology companies. and um for a number of reasons this year, the dollar's gotten weaker, our our um budget deficit, the growing uh debt. Um and so people finally sort of shined the light over on what's going on with the technology companies and the emerging markets. The the launch of Deep seek, I think also was an important thing this year that really uh had investors look at the Chinese internet companies and see how cheap they had become because they've been very out of favor over the last few years. So, you know, who knows if it will continue, but certainly this year, investors are much more interested in emerging markets than they have been in a long time.
01:38 Speaker A
And in tech and emerging markets specifically, which is where your um ETF is. Um I I want to sort of break down and talk about some of the various emerging markets. Um, Latin America's really interesting. We've got we've talked to some executives from companies like Mercado Libre and New Bank, um here at Yahoo Finance, and those stocks uh have done well. So, Latin America, what is the sort of emerging story there? if there is sort of an overal?
02:04 Kevin Carter
Sure. Well, the the the story of EMQQ and I think the really the the the biggest growth story in the world for the next 10 years, and the next 20 years, uh is the rise of six and a half billion new consumers in emerging markets including Latin America. They're getting their first ever computer, which is not a desktop, it's an Android-based smartphone that gets better and more affordable every year. and they're getting the internet for the first time. And they're going online at an incredible rate and they're leapfrogging a lot of the things we've done. They they they're never going to have a traditional bank account. They're going straight to online payments. And so Latin America amongst the emerging markets, Latin America uh is 650 million people. They're a little bit more developed than say um India and other parts of the world in terms of GDP. Uh and Mercado Libre and New Bank are they're the leaders. Mercado Libre is now the largest company in Latin America. It's been the best performing stock uh in Latin America and it's it is the amazon.com of every part of Latin America, but it's also a lot more because they've also got a financial services business.
03:07 Kevin Carter
So, you can call it the Amazon of Brazil, but you can't call Amazon the Mercado Libre of anything because imagine if everyone bought their stocks and ETFs at Amazon. That's what Mercado Libre also has with its Mercado Pago. So, Latin America is definitely a big important part of the story.
03:22 Speaker A
Well, let me ask you this, and this is a question that goes for Latin America, but it goes for emerging markets generally. One of the knocks on emerging markets and Latin America probably even more specifically is the political instability, right? Look at what's happening in Argentina right now, for example. Um Brazil has had its share of political instability. When I talked to these executives, they say, it doesn't matter because the adoption curve is so powerful. Just the thing you're talking about. But how should investor, like there is still a risk that investors probably need to be aware of there, no?
03:52 Kevin Carter
Sure. Well, emerging markets certainly have risk. Um you know, the world's a risky place and there's a lot of different risks. Um certainly uh national governance and corporate governance are amongst the biggest problems. And in the traditional emerging market indexes, the the the emerging market uh, you know, ETFs from people like Vanguard and iShares, the the broad, you know, your grandfather's emerging market ETF, uh they're full of government-owned banks and oil companies and they have tons of conflicts, they're corrupt often. Petrobra in Brazil, the poster child. I mean the whole country almost uh erupted in a civil war after this giant scandal was uh uncovered at Petrobra. So, you do need to be aware of the risk. And you also, this is another reason why I'm quite confident that the emerging market internet companies, the EMQQ companies are the best way to go because the corporate governance is very high. Uh as we talked about earlier, the founders of most of these companies including the two in Latin America, they went to Stanford. They were funded by US investors. New Bank had uh Berkshire Hathaway as an investor before it went public. So, you get a very high amount of corporate governance, high level of it in uh emerging markets, but political risk remains.
05:03 Speaker A
Let's talk about India. Is that to you is that sort of the most attractive opportunity here? You you talked about, you you touched on it.
05:13 Kevin Carter
Well, India is a very special place. I mean India, you know, if you if you look at the emerging markets by population, basically we're talking about 1/3rd China, 1/3rd India, and 1/3rd other. And within the other, uh Southeast Asia is a third of the other and and and Latin America is. But India is on paper, it's perfect. It's the largest country ever by population. Today it set a record, tomorrow it'll set another record. And for decades every day it'll be the biggest. It's got the best demographics, the fastest growth and that's driving consumption just like we saw in China. It's you can think of India as like China 15 or 20 years ago, but the main difference is when China was at this part of its growth curve, nobody on the planet had a smartphone. 20 years later as India hits this this uh growth curve, you can not only get a smartphone in India, but you can get one for as little as $12, brand new. So, uh India is a very special place. They've also got the best human capital. You can just look at the S&P 500, the Google uh the CEOs of Google and Microsoft and they've also become incredibly digitized. They've digitized their financial system at an incredible rate. They've formalized the economy using technology. And I don't think that most investors really appreciate how special India is and for its internet companies, how early it is.
06:30 Speaker A
So, I I'm curious. I mean, obviously you're a bull on all of this stuff um and you're very positive. When I look at over the next year, I mean we've have had significant periods of underperformance from for emerging markets leading up to now.
06:42 Kevin Carter
We we've had we've had more than a decade of underperformance.
06:43 Speaker A
So is there any um reason to believe that we will see that reversion to the mean in the short term? Like what's is there anything that's going to stop this momentum that we've started to see?
06:53 Kevin Carter
Well, I don't make short-term stock market predictions. I
06:56 Speaker A
We'll say let's 12 months, three to five year I mean any kind of time period you pick.
06:59 Kevin Carter
Well, three, five, 10 years, there's going to be a massive amount of growth in the emerging markets internet sector. It's happening right now. Um in terms of them coming back into favor, certainly this year, there is a a much higher appetite. Again, emerging markets have been out of favor for a long time relative to the US. But the emerging markets internet stocks were also out of favor the last few years. Um and I I think the momentum will continue um because we hear it every day. I mean investors are so much more interested in talking to us today than they were a year ago or two years ago. And but the flows so far haven't been really that much. I think there's been 15 billion dollars of flows into emerging market ETFs this year, which is, you know, a pittance to, you know, uh relative to things like, you know, Vanguard's S&P 500. but so I I I my gut is it's going to continue, but longer term it's definitely going to continue.
07:46 Speaker A
And and just quick question uh before I let you go, China, which we haven't it's a third but we haven't really talked about that much. And that um Chinese internet names have been very volatile. It can be expected they'll continue to be sort of a more volatile part within the emerging market universe?
07:59 Kevin Carter
Well, they've all been more volatile than the, you know, the broad traditional uh you know, approaches. Um, look, China got as far out of favor as you could get. It became, you know, quote- unquote uninvestable. And so in terms of, you know, bullish, bearish, it you know, the arm broke, the pendulum broke. And so and you had these, you know, very large, very profitable companies like Alibaba, like Tencent, like Baidu, Pinduoduo, and they continue to generate profits. Their stocks got very low. They bought back tens of billions of dollars of stock, which has helped the earnings grow. and they have legitimate AI. and and you know, if you listen to Jensen Wang, they're we're not ahead of them. We're sort of tied with them and they have a lot more people working on AI. They have the most patents uh on AI. So I think that the realization that AI has value coupled with the incredible cheap prices. I think the Chinese internet companies could still go up a lot and they wouldn't be expensive.
08:53 Speaker A
Kevin, thanks for coming in. Really appreciate it.
