Latin America’s digital history is just beginning

JThe digital story in Latin America is still in its infancy compared to the United States and China and has considerable growth potential, according to the latest monthly report from the Next Frontier Internet and E-Commerce ETF (FMQQ).

As more and more countries, including Argentina, Brazil, Colombia, Mexico and Uruguay, reach the “critical Internet mass” of around 75 to 100 million users, the transmitter ETF EMQQ Global expects FMQQ companies in the region to achieve the same scale of benefits as first- and second-wave companies in the United States and China, respectively.

“The formula is quite simple. It comes down to growing smartphone penetration and a growing millennial population that has been digital native since day one,” said Akeem Bailey, Director of Research at EMQQ Global. “These two levers are clearly quite structural in the FMQQ universe. This is what stimulates growth.

FMQQ, which debuted last September and tracks the FMQQ index, has exposure to 17 countries, and China is not in this group. The fund is designed to provide investors with exposure to the Internet and e-commerce sectors of the developing world and holds over 60 companies operating in emerging and frontier markets. FMQQ allocated 13.3% of its weighting to Brazil at the end of last year, making it the ETF’s second largest geographic exposure behind South Korea.

Bailey added that the team “envisions further revenue growth of 30% in FMQQ after accelerating to 46% in 2021.”

“The short-term growth is still there. The long-term tailwinds are here,” Bailey said.

And while investors are rightly concerned about where the 10-year Treasury is trading today, Bailey noted that “seeing where the puck is headed is also important.”

“FMQQ’s story has long-term compositional potential based on a theme we’ve seen play out time and time again,” Bailey added.

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