- September 1, 2021: Vol. 8, Number 8

Rethinking emerging markets

by Kevin Carter

Call it the elephant in the room: Traditional approaches to emerging markets, broad in scope both in terms of regions targeted and types of companies captured, have not worked for years. They offer flawed, overconcentrated exposures to old-economy sectors, state-owned enterprises, mismanaged corporations too often run like dysfunctional family businesses, and legacy industries that may have once offered some potential, but have long since passed their “sell by” date. While some fund managers have made improvements, such as eliminating state-owned enterprises from their portfolios, there is much more to building a future-proofed emerging-markets portfolio.

Certainly, inertia is part of the issue here. Emerging markets were always approached through a bit of a monolithic lens, and any kind of change, especially in investment management, can take time to take root. But perhaps even more at the heart of this disconnect is a fundamental misreading of what we’re investing in when we invest in “emerging” markets, and it’s not so much the market, but the people in that market who fuel the opportunity. Specifically, the consumer: The people getting wealthier, climbing up the S-curve, getting access to better education for themselves and their children, eating higher quality food and driving the growth in their local economy. Much of these improvements are supported by the growth of internet and the concurrent rise of ecommerce companies and digital innovation, something a broad-based emerging economy strategy may capture, but at an allocation so small as to have little effect on an overall portfolio’s performance.

The transformative effects of the internet are apparent more than ever before as new middle classes expand and discretionary incomes rise. We call it the “great confluence,” the merging of a growing middle class and a younger population who are leapfrogging traditional models of consumption, such as brick-and-mortar retail stores. McKinsey & Co. has called this digital revolution in emerging markets “the biggest growth opportunity in the history of capitalism.”


Smartphones have completely changed the way we approach pretty much everything in our lives, something that has only accelerated since the start of the pandemic. And in the frontier and emerging markets, the accessibility and low costs of smartphones and wireless broadband are providing hundreds of millions of people with access to the internet for the first time, and with that access comes access to new investing tools, means of payment, loans and credit, and so many of the building blocks of a strong financial future which had not been available.

This digital revolution of digital payments, communication, healthcare, education, entertainment, grocery delivery and more is being driven by a cohort of ecommerce companies. Major leaders in the space like Alibaba, Tencent and MercadoLibre provide the necessary tools to these markets and have paved a new way for consumers to consume. With smartphones upending the ways people shop, work or even hail a cab, these companies focused on ecommerce and digital innovation are well positioned to take advantage of the growth in consumption in emerging markets.

And smartphones are not yet ubiquitous in these markets. Even China and India, which are at the forefront of this digital revolution, have hundreds of millions more citizens still waiting to be brought online, to say nothing of the growth potential in markets in South America, Emerging Asia and Africa.


Though they may get the bulk of the headlines, Chinese ecommerce companies are just one part of this fast-moving story. We are now seeing the second leg of growth coming from geographies that were slower to adoption, but which will be comparably influential in population and scale. The likes of India, Africa, Southeast Asia and South America will drive the next step of this transformational story as hundreds of millions have yet to obtain a smartphone.

Some of these regions are already witnessing the power of ecommerce and tech, and companies such as Sea Limited, a Singaporean tech company, and Indian super-app Jio, are driving their own significant innovations and acquiring new users to their respective platforms at a furious pace.

Nigerian-based ecommerce company Jumia Technologies is another example that has been a sensation for the frontier African market and its growing middle class. Considered the “Amazon of Africa,” Jumia is the leading ecommerce company in the continent and an online marketplace platform with its payment arm, JumiaPay, which accounts for one-third of the company’s revenues. While Jumia was introduced nine years ago, the African market is far from saturated and has plenty of room for expansion and long-term advancement.


Also taking place outside of China is an intriguing new crop of ecommerce unicorns, poised to enter the public markets. A few we’ve been watching include:

  • Paytm, an Indian digital payments leader targeting a $3 billion IPO in what would be the country’s largest IPO debut. Like Alipay and Tencent in China, Patym has helped spearhead mobile wallets and QR codes in India. Over time it has expanded into a series of other financial services to help service the needs of India’s huge landscape of small and medium enterprises. Paytm is expected to join a wave of Indian internet companies that are likely to list in the next 18 months, including the country’s largest ecommerce platform Flipkart.
  • In Indonesia, ride hailing giant GoJek and ecommerce company Tokopedia joined forces in the country’s biggest merger ever, an $18 billion deal. Together they’ve built the most valued super-app in Indonesia: GoTo.
  • In South America, Brazil boasts the world’s largest digital bank, Nubank, with 40 million members, a valuation of $30 billion, with recent funding at $1.2 billion, from investors including Berkshire Hathaway. Nubank has carved out a successful and thoughtful product lineup and offers banking to both affluent and underserved citizens.


Today, nearly 90 percent of the world’s population under the age of 30 lives in emerging and developing economies. By 2030, the global middle class is expected to swell to 5.5 billion people, with consumption in emerging markets accounting for $30 trillion — nearly half of the global total. Investors should take notice. But the traditional ways of adding emerging markets exposure also need to change and adapt. The strongest growth stories in emergy markets won’t be state-owned, nor will investors be adequately exposed via an emerging markets fund that allocates significant assets to legacy names in manufacturing, materials and other sectors.

The biggest growth opportunity in the history of capitalism deserves to be more than just a sliver of a larger emerging markets’ portfolio.


Kevin Carter is founder and CIO of EMQQ.

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