Previously beloved domestic and Chinese e-commerce and online retail equities are, broadly speaking, out of favor with investors this year.
With the U.S. and China being the dominant investable countries in the e-commerce landscape, it’s understandable that some investors are glossing over related opportunities in other regions. However, e-commerce opportunity may be beckoning in markets such as Brazil.
Investors looking to tap into Brazil’s online retail opportunity set in a non-dedicated fashion may want to consider the Next Frontier Internet & Ecommerce ETF (FMQQ).
Brazil is Latin America’s largest economy and one of the best-performing emerging markets this year due in large part to soaring commodities prices. That’s a theme traditional large-cap Brazil indexes and ETFs are tethered to. Conversely, many old guard Brazil ETFs aren’t adequately exposed to the country’s status as a rising star on the e-commerce/online retail stage. Goldman Sachs is bullish on Brazilian stocks, including some e-commerce names.
“Brazil’s strong showing this year comes as investors bet that Latin America could fill a global commodities void left by Russia due to the war against Ukraine. Stock valuations in the region are also at record lows after years of lagging the rest of the world,” reports Fred Imbert for CNBC.
One of the Brazilian stocks Goldman is constructive on is the eCommerce platform Vtex. Citing rising revenue forecasts and robust margins, Vtex is Goldman’s “main Brazil [technology, media, and telecom] pick for an inflationary scenario” and “combines switching costs and a leading product with attractive valuation and a major global-expansion optionality.”
There may be value in Vtex as the stock has almost been halved this year. Goldman is also bullish on educational services provider Arco Platform. That company “combines a defensive profile, improving results, and an attractive valuation,” said the bank.
Both Arco Platform and Vtex are smaller members of the FMQQ portfolio. Nonetheless, the ETF is relevant in the Brazil consumer internet/growth stock conversation because many of the fund’s Brazilian holdings are hard to find traditional ETFs tracking the country. Additionally, FMQQ allocates 18.34% of its weight to Brazilian stocks. Said another way, FMQQ’s Brazil weight is more than triple what the MSCI Emerging Markets Index allocates to the country.
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