Alibaba HQ, Hangzhou, China The Future Of Emerging Markets August 2016
About the Speaker Kevin T. Carter Kevin T. Carter is the Founder and Managing Partner of Big Tree Capital and the Founder of EMQQ. Since 1999, Mr. Carter has worked with Princeton Economist Dr. Burton G. Malkiel in the development of both active and index-based investment strategies. Previously he was: Founder, Chairman & CEO of AlphaShares, an investment firm that offers five Emerging Markets focused Exchange Traded Funds (“ETFs”) in partnership with Guggenheim Investments. These funds trade on the New York Stock Exchange under the tickers YAO, HAO, TAO, CQQQ & EMRE. More information at www.alphashares.com. Founder, Chairman & CEO of Active Index Advisors (“AIA”), an investment management firm specializing in index and ETF based investment strategies. AIA was acquired by Natixis Asset Management in December 2004. The AIA Active S&P 500 strategy has outperformed the S&P 500 on an after tax basis by over 3.0% annually net of fees since inception in 2002. More information at www.activeindexing.com. Founder, Chairman & CEO of Electronic Investing Corporation (“ eInvesting ”) . eInvesting was an online broker that allowed investors to trade stocks in dollar amounts instead of share amounts thus allowing for diversification of smaller portfolios. Mr. Carter led eInvesting from inception through its July 2000 acquisition by E*TRADE Group. Mr. Carter received a BA in Economics from the University of Arizona and began his career with the investment management division of Robertson Stephens & Company in San Francisco in 1992. 2
What are Emerging Markets? Emerging Markets Frontier Markets Emerging Americas Emerging Europe Emerging Africa Emerging Middle East Emerging Asia Brazil Czech Republic South Africa Bahrain China Chile Greece India Botswana Jordan Columbia Hungary Indonesia Egypt Kuwait Mexico Poland Ghana Lebanon Korea* Peru Russia Kenya Oman Malaysia Turkey Qatar Philippines Argentina* Mauritius Taiwan Jamaica Bosnia Morocco Saudi Arabia United Arab Emirates Thailand Trinidad & Tobago Bulgaria Nigeria Croatia Tunisia Bangladesh Estonia Zimbabwe Pakistan Lithuania Sri Lanka Kazakhstan Vietnam Romania Serbia 3 Slovenia Ukraine
The Case for Emerging Markets • Different - Diversification benefits vs. U.S. & Developed Markets – Correlation to S&P 500 < 1.0 • Bigger - Size (Lots of People) – 85% of global population and 50% of global GDP • Younger - Favorable Demographics Younger populations than developed markets – • Growing Faster – Consumption • Current Valuations Attractive vs. U.S. Equities 4
Emerging Markets are 85% of World Population World Poulation 2014 7,000,000,000 6,205,000,000 5.6x 6,000,000,000 5,000,000,000 4,000,000,000 3,000,000,000 2,000,000,000 1,095,000,000 1,000,000,000 - Emerging & Frontier Markets Developed Markets 5
Emerging Markets Have Better Demographics World Population Under Age 30 3,500,000,000 3,212,146,000 8.8x 3,000,000,000 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000,000 364,854,000 500,000,000 - Emerging & Frontier Markets Developed Markets 6
Emerging Markets Have Better Demographics Ratio of Working-Age to Non-Working Population 2010 - 2025 Developed Economies Emerging Economies U.S. Germany Japan China Brazil India 2010 2.0 2.0 1.8 2.6 2.1 1.8 2015 1.9 1.9 1.5 2.7 2.2 1.9 2020 1.8 1.8 1.4 2.5 2.3 2.0 2025 1.7 1.6 1.4 2.4 2.2 2.1 Source: IMF, World Economic Outlook database. 7
Emerging Markets are Growing Faster GDP Growth 2016e 4.5% 4.0% 4.0% 2x 3.5% 3.0% 2.5% 2.0% 2.0% 1.5% 1.0% 0.5% 0.0% Emerging Markets Developed Markets 8
Emerging Markets Will Dominate by 2050 Developed & Emerging Market GDPs 1950-2050 USA China UK India Germany USA India Brazil France Russia China Japan Russia France Japan UK Brazil Germany 1960 1975 2000 2010 2020 2030 2050 Source: Data from World Bank and The World in 2050, PricewaterhouseCoopers 2008 9
Emerging Markets have Low Relative Incomes Per Capita GDP 2013 (USD$) $45,000 11x $38,293 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $3,348 $5,000 $- Emerging Markets Developed Markets 10
Moving On Up “The biggest growth opportunity in the history of capitalism” - McKinsey & Company 11
Emerging Markets Underperformed Significantly 12
Emerging Markets Valuations Seem Attractive 13
Investing in Emerging Markets 14
Risks are REAL and Present 15
SOEs Dominate the Indexes and ETFs (EEM & VWO) ~30% of EEM & VWO are SOEs Source: Big Tree Capital, LLC. 16
Chinese “Economic Fugitives” Source: Big Tree Capital, LLC. 17
Russian “Oligarchs” Source: Big Tree Capital, LLC. 18
Qatar Stage 5: Mass Consumption The Process of Emerging (Consumer goods flourish, dominant service sector) Denmark Kuwait = Developed GDP per capita = Emerging (current US$) United States = Frontier 50,000 Singapore UAE 45,000 Japan Germany Stage 4: Maturity United 40,000 (diversification, innovation, Kingdom Hong Kong investment, consumption) 35,000 Stage 3: Take Off (Industrialization, productivity Israel advances, growing investment) 30,000 Stage 2: Transitional Oman Stage (Specialization, Taiwan 25,000 Korea surpluses, infrastructure) Saudi Arabia Czech Rep. Stage 1: Traditional 20,000 Society (subsistence, Brazil Chile Hungary barter, agriculture) Russia Croatia 15,000 Poland Morocco Argentina Malaysia Kazakhstan Mexico Turkey 10,000 S. Africa Indonesia Colombia Peru China Thailand Tunisia Romania 5,000 Nigeria Egypt 1,000 = 10 Bangladesh Philippines India millions 0 = 100 Vietnam Kenya Stage Stage Stage Stage Stage 1 2 3 4 5 19
Qatar Stage 5: Mass Consumption Questions about EM Index Weights (Consumer goods flourish, dominant service sector) Denmark Kuwait = Developed GDP per capita = Emerging (current US$) United States = Frontier 50,000 Singapore UAE 45,000 Japan Germany Stage 4: Maturity United 40,000 (diversification, innovation, Kingdom Hong Kong investment, consumption) 35,000 Stage 3: Take Off (Industrialization, productivity Israel advances, growing investment) 30,000 Stage 2: Transitional Oman Stage (Specialization, Taiwan 25,000 Korea surpluses, infrastructure) Saudi Arabia Czech Rep. Stage 1: Traditional 20,000 Society (subsistence, Brazil Chile Hungary barter, agriculture) Russia Croatia 15,000 Poland Morocco Argentina Malaysia Kazakhstan Mexico Turkey 10,000 S. Africa Indonesia Colombia Peru China Thailand Tunisia Romania 5,000 Nigeria Egypt 1,000 = 10 Bangladesh Philippines India millions 0 = 100 Vietnam Kenya Stage Stage Stage Stage Stage 1 2 3 4 5 20
Questions about EM Index Weights Population 1,400,000,000 1,267,300,000 25x 54x 1,200,000,000 1,000,000,000 800,000,000 600,000,000 400,000,000 200,000,000 51,202,130 23,374,000 - India South Korea Taiwan Source: World Bank. 21
Does This Make Sense? EEM Index Weight 18.00% 16.10% 16.00% 14.00% 11.65% 12.00% 10.00% 8.00% 6.31% 6.00% 4.00% 2.00% 0.00% India South Korea Taiwan Source: www.ishares.com. 22
Qatar Stage 5: Mass Consumption Questions about Frontier Markets Index Weights (Consumer goods flourish, dominant service sector) Denmark Kuwait = Developed GDP per capita = Emerging (current US$) United States = Frontier 50,000 Singapore UAE 45,000 Japan Germany Stage 4: Maturity United 40,000 (diversification, innovation, Kingdom Hong Kong investment, consumption) 35,000 Stage 3: Take Off (Industrialization, productivity Israel advances, growing investment) 30,000 Stage 2: Transitional Oman Stage (Specialization, Taiwan 25,000 Korea surpluses, infrastructure) Saudi Arabia Czech Rep. Stage 1: Traditional 20,000 Society (subsistence, Brazil Chile Hungary barter, agriculture) Russia Croatia 15,000 Poland Morocco Argentina Malaysia Kazakhstan Mexico Turkey 10,000 S. Africa Indonesia Colombia Peru China Thailand Tunisia Romania 5,000 Nigeria Egypt 1,000 = 10 Bangladesh Philippines India millions 0 = 100 Vietnam Kenya Stage Stage Stage Stage Stage 1 2 3 4 5 23
Frontier Market Weights (NYSE: FM) 30.00% 26.40% 2.75x 6.75x 25.00% 20.00% 15.00% 9.58% 10.00% 3.91% 5.00% 0.00% Kuwait Nigeria Vietnam Source: www.ishares.com. 24
Country Definitions & Weights are Messed Up Population 200,000,000 51x 173,600,000 180,000,000 160,000,000 140,000,000 120,000,000 27x 92,547,000 100,000,000 80,000,000 60,000,000 40,000,000 20,000,000 3,369,000 - Kuwait Nigeria Vietnam Source: World Bank. 25
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