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What Investors Need to Know About Emerging Markets, with Kevin Carter

Presented by Willful

Welcome to The MapleMoney Show, the podcast that helps Canadians improve their finances to create lasting financial freedom. I’m your host, Tom Drake, the founder of MapleMoney, where I’ve been writing about all things related to personal finance since 2009.

The very mention of emerging markets is enough to make nervous investors twitch. After all, the asset class has long been synonymous with risk in investing. In this week’s episode, I dive into the subject of emerging markets with my guest, and what he has to say might surprise you.

Kevin Carter is the founder of EMQQ, an ETF that focuses on Internet & Ecommerce companies in, you guessed it, emerging markets. Kevin is a diehard value investor and Buffet fan but also a believer in indexing. His fund, EMQQ, has become the best overall performing Emerging Markets ETF over the 1,3, and 5-year periods as of May 1, 2021.

According to Kevin, one of the biggest problems with investing in emerging markets is that most of the companies on the indices are not growth companies at all, but legacy companies exposed to massive amounts of corruption and conflicting interests. Many are state-owned in their country of origin, propped up by their respective governments.

To deal with this problem, Kevin created EMQQ with the help of his business partners. It’s an emerging markets ETF that focuses on real growth companies in the internet and eCommerce space. We talk a little bit about EMQQ, but more about emerging economies in general, and Kevin explains why, after a decade of huge growth, he still sees massive opportunity in the developing world.

One thing he points out is that 2 billion people still do not own a smartphone, or have internet access. It all makes for an intriguing discussion with one of the leading experts in emerging market investing.

This episode of The MapleMoney Show is brought to you by Willful: Online Wills Made Easy. Did you know that 57% of Canadian adults don’t have a will? Willful has made it more affordable, convenient, and easy for Canadians to create a legal Will and Power of Attorney documents online from the comfort of home.

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Episode Summary

  • Two things investors need to know about emerging markets
  • What led Kevin to create his own emerging markets ETF
  • The problem of corruption in the emerging market
  • The Android phone is bringing the computer to the world for the first time
  • 2 billion people in emerging markets still don’t have internet or a smartphone
  • The consumer growth in emerging markets will continue for decades
  • Just because a company is digitally based, doesn’t make it a tech company

Read transcript

The very mention of emerging markets is enough to make nervous investors twitch. After all, the asset class has been long synonymous with risk in investing. In this week’s episode, I dive into the subject of emerging markets with my guest and what he has to say might surprise you. Kevin Carter is the founder of EMQQ, an ETF that focuses on Internet and e-commerce companies in emerging markets. Kevin is a diehard value investor and Buffett fan, but also believer in indexing. His fund, EMQQ has become the best overall performing emerging markets ETF over the one, three, and five year periods. 


Welcome to the Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. This episode of Maple Money Show is brought to you by Willful. Did you know that 57 percent of Canadian adults don’t have a will? Willful has made it more affordable, convenient and easy for Canadians to create a legal will and power of attorney documents online from the comfort of home. In less than 20 minutes, and for a fraction of the price of visiting a lawyer, you can gain peace of mind knowing you have a plan in place to protect your children, pets and loved ones in the event of an emergency. Get started for free at and use the promo code Maple Money to save 15 percent. Now, let’s chat with Kevin…


Tom: Hi, Kevin. Welcome to the Maple Money Show. 


Kevin: Hi. Great to be here. 


Tom: Thanks for being on. So here in Canada specifically, we have what’s called a common couch potato portfolio where we often recommend a quarter US ETFs, normally, a quarter international, and for some reason we recommend a quarter Canadian (even though it’s way overweighted for the world) and a quarter bonds. I know, personally, I haven’t even done the bonds yet. I’m still all ETFs. But beyond that, the common advice would then be to add an emerging ETF or buy emerging market stocks just to get further gains. Just the term, emerging, sounds like something that’s got room to grow. What I found interesting and is the reason I wanted to have you on the show is, you have your own ETF. Not only is it emerging markets, but you’re sectoring down a little more even. Just to set up our conversation, can you tell me about the ETF and why you started it? 


Kevin: Sure. It’s an emerging markets, Internet and e-commerce ETF. It invests in every Internet and e-commerce company in emerging markets. When you think about emerging markets, what we’re talking about is from a geography standpoint, from a population standpoint, from a market capitalization standpoint, it’s about 60 percent a story of Asia with China being the largest. And then it’s about 20 percent in Brazil and Mexico and the emerging Americas. And then it’s about 10 percent in Africa and 10 percent in Eastern Europe. So that’s the geographies. What we invest in are the Amazon.Coms of Brazil, Nigeria and China. And the Uber’s of Russia and things like that. They’re the same businesses we see increasingly dominating our consumption but all over the world  in the emerging markets where the implicit word, emerging implies some sort of growth. To answer your question on why did I decided to make something this focused? Well, there’s really two things investors should know about emerging markets based on my 16 years focused on the space. The first is a down side. And that is that traditional indexes and ETFs, the Vanguard’s, the iShares… There’s a real problem with that approach. In emerging markets, you have this legacy economy of state-owned enterprises; government owned banks and oil companies which have a lot of problems—corruption being the biggest problem. They don’t really represent the growth of emerging markets. That’s the first thing people should know. And it’s a problem. That’s why traditional broad emerging markets, ETFs, are always disappointing people because they see all this growth but they don’t see their emerging market investments go up in value. I think that’s the real problem. There is growth in emerging markets but it’s not captured well in the broad ETFs because of the companies that are included. And the second thing you need to know about emerging markets is that the thing that’s emerging are the people, right? Eighty five percent of the world’s people are in emerging markets. And 90 percent of the people that are 30-years-old or younger are in emerging markets and they’re moving on up. They want more and better food, more and better clothing. They want appliances. They want entertainment, vacations, cars, and they want their kids to go to Harvard. So for 16 years, all I’ve really tried to do is minimize that exposure to the legacy economy, to the oil and the banks, and increase the exposure to the consumer. Eventually, after about eight years, when people would ask me what’s the best way to invest in emerging markets or what’s the best emerging markets ETF, I would tell them to buy the emerging market consumer ETF, which is an ETF that trades here in the United States with the ticker symbol ECON. It owns the thirty largest emerging market consumer stocks, according to Dow Jones. That’s what I always tell people to buy when they ask what’s the best emerging markets ETF? I’d say buy the emerging market consumer ETF and leave out the legacy economy, the oil and the corruption and just go where the growth is. It was about eight years ago that one day I was looking at my own portfolio, the stocks that I had invested in personally to play this rise of the emerging market consumer. I had five companies. Three of them were stocks that were actually in the emerging market consumer ETF. The first one was called Want Want which is like the Nabisco of China branded snack foods. And the second and third of those companies were called Ledoning and Peak Sports, which are like the Reebok and Converse of China sportswear. So the first three companies were food and clothing. But then I had two other investments that were very clearly part of the emerging market consumer story. But they were not included in the emerging market consumer ETF because they were put in a different box in the database. They were called technology companies and those two were trading in the United States. The first one on the New York Stock Exchange called Wooba, which is like the Craigslist of China. And then the fifth and final company trades on the Nasdaq and is called Mercadolibre, MELI is the ticker, which is the of Brazil. After I looked at my five stocks, I thought, all five of these are consumer plays. The three that are called consumer stocks are great. They’re growing at 15 or 20 percent. I think they have a moat (to use a Buffett term) in form of brand equity. But then I looked at the two companies that were called technology companies, and they were growing at 100 percent—seven times as fast and had fabulous margins. While the PE multiples were higher, the PE multiple divided by the growth rate, the peg ratio (which is the only number I care about) were actually lower and quite reasonable. I just remember thinking the two best emerging market consumer stocks I own aren’t even called emerging market consumer stocks in the database. And that was it. I had that thought and then a few hours later I was in my car and my phone rang and it was a friend of mine with a three year old daughter. She said, “What’s the best emerging markets ETF for my daughter’s college fund?” I started to tell her to buy the emerging market consumer ETF but then I had a lightbulb moment and thought, “Wait a minute… The best emerging markets ETF doesn’t exist.” I immediately went back to my office and started to organize it and it launched 100 days later as EMQQ on the New York Stock Exchange. I’m not a prideful person, but that was the question I was posed—what’s the best emerging markets ETF for the long-term? And now after six and a half years, we have the number one performing approach out of all of them over—that peer of four. And not by a little bit but by a decent amount. 


Tom: Thanks for explaining that. You’ve given me a few paths I want to go down here. First of all, you mentioned these legacy companies, which isn’t something I had even thought about. I just thought that with emerging, everything’s got this huge room to grow. But really, if it’s some oil company that’s been around for a while, I assume that doesn’t make it much different than an oil company in the US or Canada, right? Any corruption stuff aside… just looking at it as companies. 


Kevin: But the corruption is a big part. Even if these were well managed companies, they’re still in legacy parts of the economy. But the corruption and the conflicts of interest are seriously important. Here’s how I got thrown into emerging markets in China in particular. I have a business partner over the last 22 years who’s a Princeton economist and a Vanguard board member and best known as the author of a book called, The Random Walk Down Wall Street. He and I co-founded a company in 2002 called Active Index Advisors. We sold the company to a large investment management firm in Texas at the very end of 2004. But a few months before that, Google had gone public and my partner gave a talk to the Google employees about investing at their request. Then some Google people called me and said, “Hey, we want you to be our investment advisor.” And I said, fine. Meanwhile, my partner was going back and forth to China and ended up writing a paper so the Google people asked if he could come down to talk about China. We drove down there one morning 16 years ago and he did talk about China. Then all these Google people looked at me and said, “We want to invest in China.” And I said, “Okay, I don’t even know what that means, but let’s figure it out.” When we got back to the office, I said, “All right. The Google guys want to invest in China,” so I asked the portfolio managers to give me a list of all the companies in the China ETF from iShares because I assumed that we would just use the ETF. And then Bertrand, my partner, pulled me aside and said, “Look, Kevin, when you get the list of all the companies in the China ETF, you’re going to see that most of them are Chinese government owned banks and oil companies.” I was sort of skeptical about that. It didn’t sound good to me because I had been to the Department of Motor Vehicles and these are not the best run operations. And he gave me the following example… You’ve got a Chinese manufacturing plant with 15,000 employees. It’s been losing money for 10 years. It’s terribly inefficient and it’s about to run out of money. And so it goes across town to the Chinese state owned bank and says, “Hey, we need more money.” Now, a normal banker would say, “No, you didn’t pay us back the last money we loaned you and you’re still losing money. You’re basically bankrupt.” But the state owned bank doesn’t say that. The state owned bank says, “Well, if you run out of money, then there will be 15,000 people out in the streets protesting and we can’t have that sort of civil unrest,” so the banker makes another loan to a company that’s essentially bankrupt. I got nauseous when Bertrand gave me that example, because to me, investing is really easy. Earnings equals value and the growth of earnings equals the growth of value. And if you’re telling me that the people who run these companies don’t care about that, why would you invest in them at all? And in the case of the China ETF, it was 80 percent state owned enterprises and in the broad emerging markets index is it’s about a third. Not only do they have conflicts of interest, but they also have serious corruption. The best example is in Brazil, where the oil giant, Petrobras, the state owned oil company of Brazil, was getting looted by lots of people including the last two presidents of the country who both went to jail for basically stealing your money if you’re using the Vanguard fund. There’s lots of problems with the SOEs. And what ends up happening is, because of this, emerging markets are the biggest value trap in the world. Something that looks really cheap but maybe there’s a reason you’re not considering it. I see this all the time, where some chief investment officer from a big Wall Street firm will go on TV or write a report and say, “We are really bullish on emerging markets.” And then they’ll say, “Look how cheap they are.” The PE is 12 or 13. And so it’s got half the PE of the S&P 500. Then they’ll say the economies are growing twice as fast so they’ve got twice the amount of economic growth. You’re paying half the PE multiple. How can that not be a bargain? What I tell them is, “If you knew what the Agricultural Bank of China was, you probably wouldn’t want to own it at three times earnings.” This is a real problem and it’s a problem with professional investors. A lot of professional investors just buy the Vanguard or iShares fund. If you bought those 14 years ago, your total return over those 14 years is zero. And you just got back to zero in the last couple of months. That’s a lost decade and a half for the traditional approaches. 


Tom: So much for that big emerging markets gain. Now, you mentioned this idea of how these legacy companies are affected by corruption, but does this not affect the smaller companies? Maybe they’re not state owned, but they’ve got pressure put on them. I don’t really know the lay of the land there, but—


Kevin: I think the vast majority of investors I’ve talked to have all of these negative preconceptions of China where they’re making up the numbers, the Chinese government is going to take over the Internet—all these terrible things. The investors would be better off to just not think all of those things and to try to at least think contrarian from those ideas. These Internet companies that we invest in, I think you can pretty much trust their corporate governance, and here’s why. Most of these companies are getting founded by local entrepreneurs like Jack Ma and Alibaba. But they’re getting funded by US institutions. They’re getting venture capital funding from Harvard or Stanford’s endowment. Or they’re getting investor investments from corporate investors like Yahoo! which put $1 billion into Alibaba that turned into $50 billion. And in my very favorite story from the last couple of years, Berkshire Hathaway bought five percent of a Brazilian FinTech company that became public. These companies, from the time they’re getting started, have the best US investors in the world are part of their capital formation. And for this reason, most of them end up trading on our stock exchanges with the highest listing standards, the highest accounting standards. So, corporate governance is your biggest problem in emerging markets but this is another reason why I think investors should be really focused in on this Internet space. In addition to all the growth they’re experiencing, you can also sleep better at night because of the corporate governance situation. 


Tom: One of my concerns while preparing for this episode was, especially down the States you always hear, “We’re going to block this company or that company,” but I think you said you’re more focused on the emergence of people in those countries. Am I right in guessing that maybe what the US does doesn’t necessarily affect these companies totally? I get there’s certainly a hit if they’re selling products or services in the US, but it doesn’t sound like they’re going to be totally affected if something were to get cut off. 


Kevin: Well, our companies shouldn’t be affected. Some of the Chinese hardware companies, in particular, phone companies, had some issues because of US government actions. But these are companies that are in China or Brazil or Africa or the Russia that are serving the billions of consumers in that world. This wasn’t as clear to me seven years ago when I organized EMQQ, but essentially, there’s three different megatrends that are captured in EMQQ. Three themes that are all enormous in size. The first one is the billions of people in emerging markets that want all of the stuff that we take for granted like food, clothing, appliances and entertainment, et cetera. That megatrend has been well documented. But the second part of the EMQQ story and the third part are these are two things that we take for granted because there are things we’ve had for a long time. Just as we’ve had more and better food, clothing, etc., we’ve also had something called the computer for 30 years now. I got my first computer in college in Tucson, Arizona, 32 years ago. And I’ve had a computer ever since. I got my first smartphone 10 years ago but I had a computer for a lot more than that. Well, the reality is most of the world has never had a computer before. So the second megatrend is called the computer, but it’s not going to be on their desk. The $50, $60, $80 smartphone running on Android is bringing the computer to the world for the first time. And it comes with the third megatrend, which is something we also take for granted, something I’ve had for 25 years, called the Internet. I got Internet access via telephone line and a modem in 1995 in San Francisco. Now the Internet just shows up in my pocket. But the reality is that in emerging markets, these people have never had a computer before. They’ve never had hardline telephones. And so all of a sudden today, basically, they’re getting their first computer, the first Internet access, and it’s changing their lives in a lot of ways but it’s forming their lives in terms of consumption, because in addition to not having computers on the Internet, they also don’t have bank accounts with debit cards. They don’t have televisions on the wall with 1,000 channels and there’s no Target store. So they’re leapfrogging. And in many ways, they’re ahead of us in terms of digitization because they’re skipping the bank account. They’re skipping the cable television. They’re skipping the target store. 


Tom: Yeah, they’re going straight to Internet and FinTech and all that. 


Kevin: Yes. And the FinTech part of the story is the biggest part. 


Tom: That’s interesting. Again, just in my bubble, I guess I never really thought about how much of the world may not be online. You mentioned the Amazon of Brazil or the Amazon of Africa. I had assumed that Amazon was everywhere. Are they are they not in those areas or just not as big of a player? 


Kevin: They’re everywhere in a way. But around the developing world, you see a combination of things. You see local competitors. It depends on the quality of the local competitor and when they started. So, in Brazil and South America, this is dominated by Mercadolibre. Amazon is a very small footprint, particularly in Brazil. And Mercadolibre is the biggest player. Not just in e-commerce, but also in FinTech. In India, you have a company called, Flipkart, which is the largest e-commerce company in India. Flipkart with a “K”, which is going to become public this year and probably in the fourth quarter. It’s owned by Walmart presently and it has about 46 percent of the e-commerce market in India. Amazon has the second biggest market share. So there you’ve got a little of both with some pretty fierce competition. And in the case of India in particular, you have some fascinating things going on there because the Indian government has decided that it does not want the global Internet companies to win. They want the local companies to win. And part of what’s going on there now is there’s a company called Reliance Geo, which is the digital division of Reliance Industries, which is the largest company in India and a 50-year-old conglomerate. In the developing world, a lot of what we’re also finding is that in terms of fulfillment, the infrastructure for distribution isn’t as well developed so using convenience stores and gas stations as delivery points is pretty important. The physical locations have value in places like India. And Amazon, as part of their strategy, has entered into an agreement to buy a large retail chain in India called Futuregroup. After they already had a signed agreement, the Indian e-commerce company, Geo, decided they wanted to own Futuregroup and the management of Futuregroup broke their deal with Amazon and agreed to be acquired by Geo. And now there’s lawsuits going on and I suspect the Indian government will rule in favor of Geo. But Amazon is the Amazon of a lot of places, but not every place. 


Tom: That’s very interesting. The idea that some of these truly emerging countries might be going from 30 years ago to now in a brief amount of time, it does sound like an interesting opportunity to invest. If you’re in Canada or the US and you were to say that over the next five years we’re going to have 30 years of technological gains, people would probably want in on that. 


Kevin: Well, this is the fastest growing sector in the world, today. And I believe this is the fastest growing sector ever in terms of revenue growth. For the last 11 years, the revenue for the entire sector has grown at an average of 37 percent a year. Now, I could be wrong. I’m not positive about anything but I’ve given a presentation to hundreds of professional investor groups over the last seven years and I’ve offered a pretty meaningful cash reward to anybody that can find me a sector that’s ever grown at 37 percent for a decade. I’ve asked everybody I know who’s smarter and more experienced than me if they can think of a sector that’s ever grown as fast. And so far my inbox is empty. This great confluence of these three megatrends is creating an incredible amount of growth and opportunity for investors. 


Tom: I know we will often caution people that past returns don’t equal the future performance. But, if you had a crystal ball, where do you see this going? Do these countries now have this technology? Or is there still a lot to catch up on to get on top of it and adopt this technology? 


Kevin: Well, the consumer growth in emerging markets is going to continue for decades. In emerging markets, there are about two billion people that still don’t have a smartphone, which means two billion people that don’t have a computer or the Internet because if you’re in western China, India or Nigeria, and you don’t have a smartphone, there is a 100 percent chance you don’t have a MacBook Pro either. This story’s got a long way to go. The next decade has a lot of growth coming. Generation Z—the Zillennials are coming hot down the demographic pipeline, and that’s an emerging market story. Ninety percent of those Gen Z’s are in emerging markets with India being the biggest part of that. So the fundamental growth will be there. It won’t be 37 percent a year forever, but I think it’ll still be the fastest growing sector. The idea that past results and returns don’t carry over to the future is totally true. But what is also true is that over the long-term, the stock markets is a scale. And the thing that goes on the scale is the earnings, and the earnings growth is going to be exceptional in this group. And importantly, the valuations currently are quite reasonable. We’ve had very good returns over the last six and a half years, but we just had a pretty meaningful correction of about 30 percent over the last few months. When I look at any investment—equity investment stocks or groups of stocks, I look at one number, the peg ratio, the PE divided by the growth rate. Any peg ratio under two is okay. A peg ratio under one is very, very good. And right now, the peg ratio for this group (after the decline) is 0.8. You’ve got a PE of about 30. But this year it’s going to have about 38 percent revenue growth. So the PE is the same as the US Faang stocks, but the revenue growth is twice as much. And in the case of the S&P 500, the peg ratio for the S&P 500 is three times as high. I don’t make short-term stock market predictions, but I feel very good that if investors have three or five years or longer, they will do very well in this group based on current valuations. 


Tom: It makes a lot of sense to me. I’ve said in the past, that I would never personally invest in individual technology stocks because I just can’t follow them. I would have been invested in Netscape and Ask Jeeves or else. Things come and go. Things that were huge one day, aren’t there the next day.


Kevin: I think Ask Jeeves turned into a pretty big operation. 


Tom: What did it become? 


Kevin: I think it’s called, now.  


Tom: It turned into that? See, I don’t even know. 


Kevin: It, surprisingly, turned into a very big company. But you’re right, a lot of things didn’t work, like MySpace or whatever. 


Tom: Yeah. Some things seemed just massive at the time and two to five years later they don’t exist. And I assume that’s the case with some of the things in the emerging market. But as an overall ETF of this, obviously, you’re more broadly diversified and it seems like a good opportunity to find some growth without having to individually check out all these stocks. 


Kevin: Well, that’s one of the beauties of an ETF. You can buy the entire theme and not have to figure out who’s going to be the Facebook and who’s going to be the MySpace, right? 


Tom: Yes. Well, thanks for running us through this. I’ve been interested in emerging markets. I haven’t even gotten the regular emerging markets ETF but I really like this idea of skipping the legacies and looking more at the technology growth. And like you said, the growth of the amount of people that will be requiring this. 


Kevin: Well, I would just make one comment… The one the important thing here to think about is, these aren’t really technology companies. These are consumer companies operating in a digital fashion. People think about Alibaba as a tech company. Alibaba is not a tech company. It’s not just a consumer company, it’s an all vertical consumer company. These companies are in health care. Alibaba has a health care business that’s a publicly traded, separate company. They’re in entertainment. The Spotify of China is Tencent Music and Entertainment Business, a separate company. They’re in groceries. The most amazing thing I’ve ever seen in China is Alibaba’s grocery store Hamal, which is literally the closest thing you’ll find to the Jetsons. It looks like Whole Foods on the floor but if you look up at the ceiling, you know you’re in the Jetsons. And they’re also the Wells Fargo’s. Alibaba and Tencent are now the bank, the wealth management firm and the credit firms. The largest play with databases technology but these are not manufacturing, semiconductors, or hardware. 


Tom: Well, again, that’s why I wouldn’t invest in individual stocks, because I only thought of Alibaba as the site where you can order stuff from China. I did not realize they’re almost following more of an Amazon model where we they take the extra cash they’re making to branch out into all the other things. Thanks for being on the show. I really like this concept. It’s something new to me, something that I think people might want to consider because it’s not commonly covered. Like I said, how we often recommend and discuss portfolios here, it’s very simple, which is great, but a little too weighted in Canada in our case. I think looking at something like this might make sense. Can you let people know where they can find you online? 


Kevin: Sure. You can find me on LinkedIn or really any social media platform. I’m @thekevintcarter. And you can find the EMQQ website at 


Tom: Great. Thanks for being on the show. 


Kevin: All right. Great. Thanks for having me. 


Thanks, Kevin, for explaining some of the challenges facing investors looking for exposure to emerging markets and how they can really focus on long-term growth in an important sector. You can find the show notes for this episode at Are you new to the Maple Money Show?. If so, I want to thank you for listening. In case you weren’t aware, you can watch videos from many of our top episodes over on our YouTube channel. If you’re interested, head over to Make sure to like the video and hit the subscribe button. I appreciate the feedback I receive from my listeners. I want to thank everyone that’s taken the time to email me or share their favorite episode in a Tweet. It keeps me motivated to keep bringing in new guests and great topics. Thanks for listening and I’ll see you back here next week. 



...and I thought, ‘Wait a minute, the best emerging markets ETF doesn’t exist’, and I went immediately back to my office and started to organize it and it launched 100 days later as EMQQ on the New York Stock Exchange - Kevin Carter Click to Tweet