South Korea’s Naver (035420, Korea), Russia’s Yandex (YNDX) and Brazil’s Magazine Luisa (MGLU3. Brazil) don’t have much in common, except they are all emerging market tech stocks that rose this past week as China imploded on The Didi Affair. For anyone who’s been kayaking in a remote area, Beijing authorities launched investigations of ride-hailing champ Didi Global (DIDI), and banned it from app stores, days after its $4.4 billion IPO in New York, spreading calamity throughout China Tech.
China Tech and emerging markets tech have been close to synonymous until now. The Emerging Markets Internet and Ecommerce ETF (EMQQ) has about 70% of its weight in China. That’s changing. A semi-annual rebalance of EMQQ brought 26 new names into the fund, 17 of them non-Chinese. Egypt with Fawry Banking Technology (FWRY) and Kazakhstan with Kaspi.KZ (KSPI. London) cracked the list for the first time. Both stocks have more or less tripled over the past year.
China was maturing digitally even before the dispiriting state crackdown. Ecommerce there reached a quarter of all retail sales last year, compared with 15% for the U.S. and single digits for the likes of Brazil, India or Indonesia. Giants like Meituan (3690. Hong Kong) and Alibaba (BABA) are chasing the next phase of growth in dubious corners such as “community group buying,” where neighbors pull together to order groceries in bulk. (Only in China, right?) Fintech could be a much greener growth pasture. But authorities poured cold water there by stopping the IPO of Alibaba’s financial arm, Ant Group, at the last second last fall.
Outside China, the field is more open and government less hostile. Big, promising companies are rushing to fill the space. It may surprise you to learn that the biggest digital bank in the world, with 40 million customers, is Brazil-based Nubank. It’s also one of the hippest, boasting 40% female and 30% LGBTQ-affiliated staff. More to the point for readers here is the $30 billion valuation clocked in its latest private funding round, which was led by none other than Warren Buffett and Berkshire Hathaway. Leaks from the company point to an IPO later this year or early next.
The fintech crown in Indonesia and the rest of Southeast Asia is up for grabs, with three top contenders emerging. Singapore-based Sea, a pan-regional leader in games and ecommerce (through its Shopify brand), wants to segue into banking. So does GoTo, the Indonesian powerhouse formed in May by the merger of ride-hailer Gojek with online merchant Tokopedia. GoTo is heading toward a public listing with valuation in the $20 billion range. Grab, the Singapore player that muffed its own tie-up with Gojek, is in the midst of a slow-motion listing via SPAC, which was supposed to value it at $40 billion.
The game is afoot in South Korea, too. Naver, the country’s dominant search engine, is fighting it out with social media/games platform Kakao (035720. Korea) for who can expand faster into digital finance. Kakao’s stock has doubled this year as investors anticipate spin-off IPOs for Kakao Bank and Kakao Pay. Naver is up a mere 40%, also shrugging off China’s problems. Government may have something to do with it: Seoul authorities are nurturing their fintechs with a state-sponsored lending platform scheduled to go live this fall.
But ground zero for ex-China tech should be India, a China-sized market (by population anyway) where digital infrastructure is 7-10 years behind. While Beijing assails its innovators with investigations and fines, Indian prime minister Narendra Modi just declared the 2020s his country’s “techade.”
A number of sizeable IPOs are set to test the premise. Food deliverer Zomato just announced it will hit markets July 14, aiming for a valuation around $8 billion. That’s a warm-up for Paytm, the leading digital wallet provider, which plans to gun for $30 billion later this year. Flipkart, a top ecommerce player majority-owned by U.S. colossus Walmart, may come next year at a similar valuation. Private equity investors are priming the pipeline for the years after that. A dozen Indian companies, with names like CRED, Digit Insurance and Groww, have reached unicorn status in 2021 despite the ravages of Covid-19. The smart money is thinking big picture.
China’s leaders seem to have shifted from protecting their tech companies as a national asset to fearing them as a threat to state monopoly — Frankenstein syndrome with a vengeance. They will probably shift back when they are ready. By then investors will have more choices in less capricious places, though.