A Digital Revolution in Emerging Markets with Kevin Carter, Founder & Chief Investment Officer, EMQQ.
SPEAKER
Kevin Carter
Founder & Chief Investment Officer
EMQQ
TIMESTAMPS
EPISODE TRANSCRIPT
Kevin Carter: (00:07)
So thank you all for showing up to hear my talk. I'm going to do three things today. First, I'm going to tell you who I am and how I think about investing, how I got involved with China and emerging markets 15 years ago. And then I would tell you everything I think you need to know about investing in emerging markets. I will tell you how we do it and why we think it's the best way to invest in both emerging and frontier markets. And then I'll talk a little bit about China and what's been going on there.
Kevin Carter: (00:44)
I live 15 miles east of San Francisco in a town called Lafayette. I've lived there my whole life, and I've worked in the investment business in the Bay Area for 28 years. I started at a company called Robertson Stephens & Company, which some of you may remember. It was a technology focused investment bank. We used to call it the Goldman Sachs of San Francisco. We don't say that anymore because young people think that means the devil. But that's where I started.
Kevin Carter: (01:15)
And I had one interview. It lasted about 30 minutes. We talked about college basketball for most of it. And then the guy said, "You can start Monday." And I said, "Well, how can I possibly start Monday? I don't know anything about investing." And he said, "Go buy this book." And he wrote down A Random Walk Down Wall Street. And I went to the bookstore and picked up the way home. I read it and went to work Monday.
Kevin Carter: (01:40)
And many of you are probably familiar with this book. It was first written almost 50 years ago. And in the first edition, the author, Burt Malkiel suggested that somebody should make an index fund. And a couple of years later, his friend John Bogle did. And so this book and its author have long been associated with indexing and ETFs.
Kevin Carter: (02:05)
Now I however, very quickly gravitated towards Omaha. And I try to think about every investment and business decision through a Charlie Munger and Warren Buffett lens. But for the last 22 years, I've actually worked with Dr. Burton Malkiel, the author of A Random Walk Down Wall Street. So I've had one foot in the active world, one foot in the indexing world. And in 1998, I was a very young, cocky value investor. And I was shorting amazon.com, which cost me about a third of my net worth in one day. And the same day I saw a company changed its name from KTEL to ktel.com and the stock went from $1 to $30. And I said, "I've read about this. I know I've read about this."
Kevin Carter: (02:58)
And I found my copy of A Random Walk Down Wall Street. And there was a quote from Jack Dreyfus about the 1960s electronics bubble. And the quote was basically, take a company called Shoelaces Incorporated, change the name to Silicon and Electronic Furth Burners. The stock used to sell for eight times earnings, but by changing the name, it can now sell for 64 times earnings. And it was exactly what it just happened with this company, KTEL. And I said, "I have to call this guy. It's right out of his book."
Kevin Carter: (03:33)
And so I used the search engine of the day, which for me was Ink to me. And I put in Dr. Burton Malkiel, and up came a Princeton web page with his picture and his class schedule and his phone number. And I picked up the phone and I dialed it, thinking I'd get a secretary or something. And lo and behold, he answered the phone. And I said, "Geez, Dr. Malkin, I don't know you, but I read your book." And I said, "You got to see this." And he asked me to fax him a Bloomberg print out or something. And I did.
Kevin Carter: (04:04)
Anyhow, one thing led to another. And now 22 years later, we've been business partners for two decades. So I've had one foot in the active world, one foot in the indexing world.
Kevin Carter: (04:15)
One of the companies we started in 2002 and sold to Natixis at the very end of 2004 was called Active Index Advisors, which still exists as a division of Natixis. It was a pioneer in what's now called direct indexing. But right before we sold the company, Google went public. And when Google went public, they asked my partner, Burton, to give a talk to the employees about investing. I wasn't involved with that, but Burton was on the West Coast and had dinner with me the night before. And then he went down to Mountain View and talk to the Googlers before their IPO.
Kevin Carter: (04:54)
And a few months later, my phone rang and it was a guy from Google who had googled me and he said, "Hey, I heard about this active indexing you do. How do I invest?" And I said, "Well, who's your advisor?" He said, "I don't have an advisor." I said, "Well, we're available at Morgan Stanley and Credit Suisse and Deutsche Bank. And I'm happy to introduce you to an advisor at one of those places." And he said, "No, I don't want an advisor. I just want to invest directly."
Kevin Carter: (05:20)
So I drove down to Mountain View and met with this 25-year-old with a nine-figure piece of stock and ended up becoming his investment advisor and the advisor to several of the earliest engineers at Google over the coming months. But while I was going back and forth to Mountain View, Burton was going back and forth to China. And he ended up writing a white paper, making the case for China. The Google people found out about it and called me and said, "Can Burton come down to Mountain View and talk about China?" And I said, "Sure. Next time he's on the West Coast, we'll come on down."
Kevin Carter: (06:02)
So 15 years ago, this spring, I drove to Mountain View one morning with Burton. He gave a talk about investing in China, and then all these people looked at me and said, "We want to invest in China."
Kevin Carter: (06:18)
Now at that point in my life, I didn't know very much about China. I had never been to China. All I knew was what I had read in Burt's paper. But from the moment that talk ended until today, my entire life has been focused on figuring out what on earth does that even mean to invest in China, and how should you do it? So with that, let me tell you what I've learned and what you need to know.
Kevin Carter: (06:49)
First of all, when we talk about emerging markets, we're talking about the world. And in terms of GDP, market cap population, this is about 60% Asia. It's about 20% the emerging Americas. And then 20% scattered between Eastern Europe, Middle East, and Africa. So that's what it looks like on the map. Fundamentally, it's the world. It's 85% of the world's people. It's even more of the future as measured by young people, for which it's almost 90% of the world. So this is the world and it's even more of the future. And it's a big deal.
Kevin Carter: (07:29)
And what's happening. You can see on this slide, on the left side, they're now larger than developed markets on a GDP basis. But on the right side, you'll see the emerging market share of a number of categories, three of which have red arrows. The top red arrow is showing you again, that this is where all the people are. The bottom red arrows are showing you that in the consumption categories, retail sales and consumer spending, emerging markets are way behind. And it's the delta between those three bars and the closing of that delta, that is the story, the rise of the emerging market consumer.
Kevin Carter: (08:19)
Now, let me come back to that because that's what is EMQQ is all about, and let me tell you something that's wrong with the way people have been investing in emerging markets. There's a lot of problems with indexing, as it turns out in emerging markets. And they're pretty big. And it took me about five minutes to figure out the first problem after we got back to San Francisco that day from Mountain View.
Kevin Carter: (08:56)
So we drove back to San Francisco, went up to our office. I walked over to the portfolio managers and I said, "The Google guys want to invest in China. Give me a list of all of the companies in the FXI." That's the iShares China ETF, which was the only China ETF at the time. And I assume that's what we would use for the Google guys. And I like to look under the hood with my Omaha head and see what exactly are the companies in this ETF.
Kevin Carter: (09:29)
And so I asked for the list, and Burton pulled me aside and he said, "Look, when you get the list, you're going to see that almost all of the companies are Chinese owned banks and oil companies." And I said, "Yeah. I've heard about that. It doesn't sound great."
Kevin Carter: (09:49)
And he said, "Well, let me give you an example of how these things work. You've got a Chinese manufacturing plant with 15,000 employees. It's been losing money for a decade, and it's about to run out of money again. But it has 15,000 employees. The management of the bank goes to ... or the management of the company goes to the bank, the state owned bank and says, 'Hey, we need more money.' Now, a normal banker would say, 'No, you can't have any more money. You didn't pay us back the last money.' But the state owned bank says, 'Well, if you run out of money, then these 15,000 people are going to be out in the streets protesting.' So it makes another low."
Kevin Carter: (10:26)
I got literally nauseous inside when I thought about that, because with my simple Omaha brain earnings equals value and the growth of earnings equals the growth of value. And if the people running 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 over 80% state owned enterprises. And the consumer piece was like 8%. And it's not as bad in the broad indexes, but it's bad. About a third of the Vanguard fund and the iShares fund, the Schwab fund and all the other funds, not all but most of them, certainly the broad emerging markets funds, they've got about a third of their assets in these state owned enterprises, which are conflicted, they're inefficient.
Kevin Carter: (11:16)
Poor corporate governance is putting it quite mildly as corruption is everywhere. And you don't have to look very far. It's in the papers almost every day. The best example is in Brazil where the state owned oil giant Petrobras was being systematically looted by the people that ran the country, including the last two presidents who both went to jail for basically stealing your money if you're using a broad emerging markets approach.
Kevin Carter: (11:47)
And the problem's even bigger, if we count two other groups of companies that have a lot of the same problems. The Chaebol in Korea and the Russian oligarchs that took over the Soviet SOEs. If we counted those two, it's 50% of the index, then those two groups have lots of problems like people going to jail, like this guy, the Chairman of Samsung, who's been in jail, in and out of jail twice in the last six or seven years, once for bribing the president of the country who went to jail as well.
Kevin Carter: (12:22)
So this is why, if you think you're going to make any money buying these broad emerging market products like Bridgewater's five of their top 25 holdings, I think you're going to be disappointed. FXI, for 10 years, when I talked about that company, that product, I called it the worst investment product in the world.
Kevin Carter: (12:48)
You got to do emerging markets 3.0. You have to evolve and get more precise. And ... Can you go back? Thank you. You've got to get more precise. So in my first eight years on the China's scene, Burton and I launched a number of China ETFs with Guggenheim that now have the Invesco brand. But when I wasn't working with Guggenheim, I spent my time in New York City and Boston with family offices and foundations and endowments. And I watched how they evolved.
Kevin Carter: (13:25)
They saw they weren't making any money. They're increasing their allocations and they get more precise. Now, if you're Yale, you can set up Hillhouse. But most people aren't Yale. And so when people would ask me, "What's the best way to invest in emerging markets," I said, "That's easy. You buy econ, the emerging market consumer ETF," which I didn't make, but I knew it existed. And if you believed McKinsey and me, then all you really want is the consumer. Econ was the product to buy. 30 largest emerging market consumer stocks.
Kevin Carter: (14:08)
Now, one day, about eight years ago, seven and a half years ago, I woke up one morning and I thought, "What on earth have I done with my life?" I was this young, cocky Charlie Munger wannabe. And somehow I get mixed up with this guy at Princeton and I'm building Chinese index funds for God's sake. And I've obviously lost my way and I need to go back to my roots. And so I set up an investment partnership.
Kevin Carter: (14:35)
Once it was organized and my own money was in it, I invested in five stocks. And then I thought, "Well, I should see if any of my friends around town want to invest in this fund." And so I scheduled some meetings and the morning of those meetings, I made some slides to show the people I was going to be meeting with. These are the five companies I own was one of the slides.
Kevin Carter: (15:00)
And when I made that slide, the first three stocks I put on it were stocks that were in the emerging market consumer ETF. Those three stocks traded in Hong Kong were Want Want which is like the Nabisco of China, branded crackers. Second and third companies, Chinese sportswear makers, Li-Ning and Peak Sports. Can think of these as the Reebok and Converse of China. So those were the first three stocks, food, clothing, traditional consumption.
Kevin Carter: (15:28)
But then I had two other stocks that were clearly part of the emerging market consumer story, but the database didn't call them consumer. The database said they were technology companies. And that's why they were not in the emerging market consumer ETF. The first one traded on the New York Stock Exchange was WUBA. This is the Craigslist of China, which has since gone private. And the fifth and final company trades on the NASDAQ. It's called MercadoLibre, MELI, which is the amazon.com and PayPal of Brazil and Mexico and every other country in Central and South America.
Kevin Carter: (16:09)
And I looked at the slide after I made it, I thought, "Hmm, these first three companies, these consumer companies are great. They're growing at 15% or 20%. I think they have moats in form of brand equity." But then I looked at the two internet companies and they were growing at 100% literally and had incredible margins. WUBA had a 94% gross margin, which is by far the highest gross margin I've ever seen. And that's where I look for moats. And while the PE multiples were higher for those two stocks, when you divided the PE by the growth rate, it was lower and quite reasonable. And I just remember thinking my two best emerging market consumer stocks are not in the emerging market consumer ETF, because they're called technology companies.
Kevin Carter: (17:07)
Printed my slides, went to my meetings, got three checks, driving home. My phone rings, and it's a friend of mine with a three-year-old daughter. And she says, "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 a light bulb appeared above my head. And I said, "Wait a minute. The best emerging markets ETF for long-term investors doesn't exist." And I went straight back to my office and started to organize EMQQ.
Kevin Carter: (17:46)
Now, at the time I could see the incredible growth rates, I could see the incredible margins, and I can see that the valuations were reasonable. But what I didn't appreciate was what was causing this incredible growth. And, excuse me, it's quite clear to me now. It's quite clear to me now. It's really a combination of three things, three big things, three mega trends happening at the same time, and they are creating what I'm pretty sure, but not positive is the fastest growing sector in the world, ever.
Kevin Carter: (18:34)
What are those three mega trends? This is the first one. We've already talked about it. Billions of people moving on up and they want stuff, more and better food, more and better clothing, appliances, vacations, cars, Harvard. That's what they want. It's a big deal. McKinsey calls it the biggest growth story in the history of capitalism as we said.
Kevin Carter: (18:59)
Now, when I got that call, I answered it on my iPhone, which was sitting on my car seat next to me. So I had a smartphone eight years ago, but I hadn't had it very long, and I could already see how it was changing my family's consumption. Back then, my family went to this store four times a week, which is easy to do. It's three miles from our house. The roads are paved. There's free parking. But all of a sudden the trips to the store started to go down. And this guy started showing up at my house once a week, and then twice a week. Now my family doesn't go to Target. And this guy, Mark, is at my house five times a week, seven times a week, all the time.
Kevin Carter: (19:47)
So if you think about how the smartphone has changed us and you map it over to the emerging market consumer, the story gets quite big. It gets quite big because I had a computer for 20 years before I got my smartphone. Most of the people in the world have never had a computer before. All of these people are getting their first ever computer. It's not on their desk and it never will be. And in most cases, it doesn't have an Apple logo. We're talking about $50, $60, $80 Android-based smartphones made in China getting better every year, getting more affordable every year, and bringing the third mega trend with it. Something we also take for granted, something I've had for 25 years called the internet.
Kevin Carter: (20:47)
I got the internet in 1995 in the Marina District of San Francisco on the telephone line. Then it went onto the cable. Now it just shows up in my pocket. Well, most of the world has never been wired before. So all of those billions of people, in addition to getting their first ever computer, they're getting their first internet access. And because they don't have a bank account and there's no TV on their wall with a thousand channels and there's no Target store, they're leapfrogging what we think of as traditional consumption. And the result is this.
Kevin Carter: (21:36)
This is showing you the revenue growth for the emerging markets internet sector, the EMQQ index. And you can see that for the last 11 years, the average annual growth rate was 37% a year. Now that's hard to do for any single business, let alone an entire sector. I'm not 100% sure of anything in the world, but I've given this presentation to hundreds of professional investor groups and I offer $100,000 reward to anybody that can show me a sector that grew for 38% a year for a decade.
Kevin Carter: (22:21)
I could be wrong. I haven't gotten any emails from the people I offered the bet to. I've asked everybody I know who's smarter and older than me if they know a sector that had revenue growth of 38% a year. And so far, my inbox is empty. So I could be wrong. But I think this is not only the fastest growing sector in the world, but the fastest growing sector in the world ever.
Kevin Carter: (22:46)
Now, what comes with that fundamental growth? Value creation. You can see on this chart in yellow gold, how the internet sector has done over the last 12 years. And bouncing along the bottom in blue, the broad indexes, the biggest value trap in the world, the MSEI, emerging market index. Look how cheap it is. Half the price of the S&P. That's what they always say when they say they're pounding the table on emerging markets and recommending you buy the broad index.
Kevin Carter: (23:25)
So what are the companies? Alibaba, not the largest anymore. Our fourth largest holding, the most popular, at least best known of the emerging market internet companies. And let me point out one more important thing. When this company came public, it revealed another problem with the indexes, something that I also learned on my very first day when I got back from Mountain View 15 years ago. So once Burton gave me his warning about SOEs, and then they gave me the list of all the companies in the China ETF, I went through every company and I got to the bottom of the list. And I said, "Where's Baidu," because Baidu was not in the China ETF.
Kevin Carter: (24:18)
So we called the iShares people and said, "Where's Baidu?" They said, "Well, we don't own Baidu." I said, "I know. I can see. It's not on the list. Why don't you own Baidu?" "We don't consider it a Chinese company." And I was like, "What do you mean?" Said, "Well, it trades the United States?" I said, "It's the Google of China, and being the Google of anything seems like a good idea. And being the Google of the biggest country in the world seems like a really good idea." They said, "Well, we don't include it because it trades the United States."
Kevin Carter: (24:49)
Now it took the Alibaba IPO for this problem to finally get fixed. It bothered me a lot. Nobody else cared, certainly not consumer reports and USA Today who actually wrote about this problem, because you couldn't get Jack Ma off of your computer screen or your TV for a month. They're telling you how big a deal this is, and it's not going to be in the Vanguard fund. It took them three years to finally add Alibaba. So the indexes are terrible. Half of these companies are still not included in the index. And the reason is because they trade here, which is a shame. And the reason they trade here is because they're getting funded by our best investors. And they're listing on our exchanges with the highest listing standards, and investors are getting penalized for this.
Kevin Carter: (25:45)
Examples. You had Yahoo put a billion dollars into Alibaba, which turned into the only thing they really had at the end and a lot of money. And in my favorite example from the last couple of years, my heroes in Omaha, bought 5% of this Brazilian FinTech company, Stone, on its IPO, the first ever investment IPO investment I believe for Berkshire. Stone's not in your iShares shares fund, not in your Vanguard fund.
Kevin Carter: (26:14)
So corporate governance is bad in emerging markets. These companies on a relative basis to things like Petrobras, you'd have to say they have exceptional corporate governance. And meanwhile, a lot of them still get left out. You'll get Petrobras, the corrupt Brazilian oil giant twice in your Vanguard fund, your iShares fund, but you won't get Stone.
Kevin Carter: (26:39)
And now let's talk about Tencent. And let me say a few things. We'll wrap up the China part of the story and get into the next frontier, which is getting quite exciting. Tencent, most of you probably know this company. It's now the biggest market cap wise, Alibaba, Tencent neck and neck for the last decade. Plus, to make it simple, we've always told people Tencent's the Facebook of China. And it's true. The WeChat platform is the social network. It's how I talk to my Chinese friends and colleagues. So that's a fair assessment. But you can't call Facebook the Tencent of anything. Because in the case of Tencent and Alibaba, there is no equivalent.
Kevin Carter: (27:18)
And the reason is because the consumption infrastructure in emerging markets is by definition underdeveloped. And when I say consumption infrastructure, I mean bank accounts with debit cards, TVs on the wall, Target stores. Because those things don't exist, not only are the consumers leapfrogging, but Alibaba and Tencent are digitizing every consumer vertical.
Kevin Carter: (27:42)
These are not technology companies. These are all things consumer, companies operating in a smartphone world. They're in healthcare. Alibaba, JD, Tencent, all have healthcare businesses. Two of them are public. One's coming. Entertainment, Tencent's the Spotify of China, Tencent owned majority trades on the New York Stock Exchange. Food, groceries. This is the most amazing thing I've ever seen. This is a photo I took in Alibaba's Hema market. And I could spend an hour telling you how amazing it is, but it's the closest thing I've ever seen to the Jetsons. And it's also FinTech and the money. So everything's getting digitized by far, by far the biggest part of the story is FinTech.
Kevin Carter: (28:37)
And it starts with payments. You get the money on the phone. Anybody that's been to China knows every place you want to buy something, you'll find two QR codes, everywhere. And once you get the money on the phone, you're in business. And Alibaba and Tencent have the money on the phone now. And that has allowed them to get into investment products, insurance products, and to ... that is [inaudible 00:29:05] financial ... the banking and credit products. We'll come back to that. But all things are getting digitized, FinTech and the money especially, and it's quite a paradox. You would think someone like me, a FinTech entrepreneur in San Francisco, that I would be on the cutting edge and zap my phone to buy everything. Not me. Africa. We'll talk more about FinTech.
Kevin Carter: (29:29)
Now, there's lots of other Chinese companies. These are some of the bigger ones, Pinduoduo, an amazing company, and a great stock as well, jd.com, Baidu, Meituan. This has been largely China's story so far. But there's something else really big happening, and we're pretty excited about it. So let me tell you what is happening outside of the China story.
Kevin Carter: (29:57)
China's big. It's our biggest weight, 65%. That's for good reason. It's by far the biggest e-commerce market in the world. You can call it emerging market, but in the internet world it's developed and it's big. In fact, it is four times the size of the other 45 emerging and frontier markets on an e-commerce basis.
Kevin Carter: (30:25)
So it's dominated our weights for a long time. But, the other part's starting to get pretty exciting. You can see here that same revenue chart, the blue being the China portion, the gold being the non-China portion. You can see the China piece crossed $100 billion seven years ago. You can see the non-China piece crossed $100 billion today, basically.
Kevin Carter: (30:53)
So outside China, the story's getting hot. This has been the company that showed us this, showed us how big the FinTech part of the story was, the Amazon and the PayPal of Brazil and all of South America, not in the indexes. Sea Limited might be the best performing stock in the world for the last several years. Trades here, headquartered in Singapore. This is a mashup of gaming, e-commerce, FinTech.
Kevin Carter: (31:26)
Yandex, the Uber of Russia or the Google of Russia rather is also the Uber ... The Google of Russia is also the Uber of Russia. Now that's Yandex, not in your index. You'll get the oligarchs. Africa. Nigeria has got a company trading on the New York Stock Exchange, JMIA. E-commerce leader in several Sub-Saharan African countries.
Kevin Carter: (31:51)
Poland has its own Amazon, largest company now in the Warsaw Exchange. Kazakhstan has a super app trading in London. We didn't buy this stock after it went public because they didn't put Kazakhstan on the list of eligible countries when I made the fund. It didn't occur to me that Kazakhstan would have its own super app publicly traded.
Kevin Carter: (32:17)
Uruguay, this company is amazing, dLocal. Check it out. Hepsiburada, Turkey. Everything is here. Indonesia. These are all recent. And it's a big, big deal. The rest of the world's getting the internet and lives are changing. And this company marked a pretty big inflection point. This is an Indian IPO that happened in the last several weeks, Zomato. This is a milestone.
Kevin Carter: (32:51)
There are now more non-Chinese companies in the internet space than Chinese, and they've doubled in the last 12 months, doubled, 30 to 60, and lots more coming. We could have 25 India internet IPOs in the next 18 months. Flipkart's coming, e-commerce leader controlled by Walmart, Tencent, and investors. One of my favorites, my heroes again, FinTech leader, Alibaba, largest shareholder, Paytm, the Indian payments leader in the papers this morning. Southeast Asia has got so much going on.
Kevin Carter: (33:39)
This is one of my favorites. This is a new merger, a mashup of two companies, Tokopedia, the Amazon of Indonesia is hitching up with the Uber of Indonesia, Gojek. They're both the Venmo of Indonesia. This company will come public. You'll hear about it, owned partially by Tencent and Alibaba and Google. Biggest online bank in the world, Brazil, Tencent, and again, Omaha, early ... Well, Tencent, an early investor. Warren Buffett and his guys just invested two months ago. This company is coming. I love this company, Nubank out of Brazil.
Kevin Carter: (34:22)
So this is a big deal. And there's lots of awesome elements as you read and see how these people's lives are changing. They're getting information for the first time. They're getting access to stuff for the first time. And it's a big deal.
Kevin Carter: (34:42)
So in summary, this is where the growth is. This is where the growth is in the world. And it's certainly where the growth is in emerging markets as these three mega trends happen at the same time, billions of people getting a computer and the internet, leapfrogging. Important side benefits in a part of the world where getting your money stolen is your biggest problem? I think you can rest a little more comfortably with these companies and you get exposure to what's going on beyond China. So it's still pretty early.
Kevin Carter: (35:24)
Now, we have a crisis right now. The Chinese word for crisis is a combination of two symbols, danger and opportunity. I think this is an opportunity. We've been crushed since February, down almost 40%. Most of that, a result of China. And July wasn't a very fun month for us, as you might imagine. I'm not going to go deep into the stuff since I've spent the last six weeks talking about China, trying to calm people down. Everyone's scared. Everybody's been scared of China for the 16 years I've been involved and the main thing I hear is fear. The Chinese government, they're communists, they're going to steal all my money. And it finally happened, not in this case, but in this one.
Kevin Carter: (36:20)
Now, this is the online tutoring crack down that freaked people out in a major way. I think it was ... Well, I don't think it's going to work what they're doing, but they had to do something with the online education and the tutoring frenzy in China. But I didn't think they'd actually make them go non-profit, but they did. And I think it's unfortunate, at least for the way people think of China. I don't think it was the wrong thing to do by the Chinese government, but it sure freaked out US investors, because finally the Chinese government did steal your money if you owned TAL or EDU. Tiananmen Square moment? Maybe. Stephen Rote's even getting scared.
Kevin Carter: (37:10)
You got to know what Kathy's doing. She sold it all. Ironic. Ironic. The front page of the New York Times has an article about Joe Biden's team coming for the FAANG stocks that are making new highs. The Chinese government's involved? Sell. Run. I don't think it means all that much negatively when I look at the fundamentals of each of the different regulatory actions starting with the Ant Group. Sure helps valuations. Easy to pound the table when blood is in the streets.
Kevin Carter: (37:48)
I like the way Ray Dalio thinks about China. He articulates what I think is a more appropriate way to think about China for investors. But I'm not going to go into all the details of the Chinese government. I'm not here to do that. But they did tell me when I was young, you're supposed to buy fear. And on the 27th of July, I had never seen so much fear about China coming to steal your money.
Kevin Carter: (38:19)
So they told me to buy fear, and that's what I was doing on the 27th of July. Could get more fearful. Maybe they will steal more people's money, but I don't think so. I think they're all in favor of capitalism. Valuations are good right now. The peg ratio about 0.75, maybe 0.8, about half the peg of the US tech leaders, a third, the peg of the S&P 500.
Kevin Carter: (38:50)
So I don't make short-term stock market predictions, but I'm pretty confident if you've got three years or five years or seven years, you're going to do very well in the EMQQ and its companies. It's been the right way to go since we made it. When my friend asked me what was the best emerging markets ETF for long-term investors, even after a 40% decline. And I think, if we come back here five, six, seven years from now, I'm pretty sure it will be number one again, or maybe number two out of everything.
Kevin Carter: (39:38)
And the reason I think we might be number two is because there's something new that we are putting together that we're pretty excited about that I think ... I think it's going to be close for long-term investors, but we have a new thing coming, a new index that'll be available sometime soon. It owns all of the same companies as EMQQ, but it doesn't own China. So the next frontier, all of the non-Chinese internet companies are going to have their own vehicle for investors, and I think it's going to do pretty darn well too. And actually, I think investors should be excited about it and they should be excited because of two things, of two statistics.
Kevin Carter: (40:36)
You can see here, again, in purple that these companies, the non-Chinese companies have just passed $100 billion basically today. That's what the Chinese companies did seven years ago. There's four times as many people in this next frontier. Four times as many people. And the e-commerce penetration is about a quarter or a fifth of China.
Kevin Carter: (41:20)
So thank you for coming. That's all.