Speaking to InvestorDaily, Janus Capital portfolio manager George Maris said e-commerce companies such as Alibaba in China and MercadoLibre in Brazil have quickly utilised their scale to create natural monopolies.
“It’s very difficult to overwhelm the leading players [in emerging markets] once they’ve established significant e-commerce positions,” Mr Maris said.
The opportunity for investors, Mr Maris said, is that EM e-commerce players tend to be valued as substantial discounts to their developed market peers (e.g., Amazon).
But unlike companies like Amazon, EM e-commerce companies have an open-ended growth and (in many cases) a complete lack of competitive response by domestic peers.
“Growth is so tremendous [in emerging markets e-commerce] that there’s no reason to fight for market share at this point,” Mr Maris said.
“So there’s growth that you just can’t find anywhere else in the world and the profitability metrics are absolutely spectacular,” he said.
Given the structural advantages of EM e-commerce, the fact that the likes of Alibaba trade at a discount is hard to believe, Mr Maris said.
“It’s a function of distrust or fear of the unknown. There are some views that the EMs are risky per se without really digging into them, and I think that’s an opportunity for an investor who does a bit of deeper analysis,” he said.
The only worry for investors is that EM governments will step in and take action when dominant e-commerce companies attempt to consolidate their position, Mr Maris said.
“There’s a true natural monopoly that evolves in e-commerce. The worry is that the government comes in and tries to cut that out,” he said.
“The Chinese government hasn’t stopped that consolidation and the scale advantages [that accompany it], but that’s clearly a potential risk that the government could come in an stop it.”
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