20 best Emerging Market stocks through the pandemic
Strategy Note / Global

20 best Emerging Market stocks through the pandemic

  • We highlight 20 EM stocks whose structural growth trajectories received a pandemic boost

  • Not all have achieved cash flow sustainability, but growth-starved investors are proving to be extremely forgiving

  • Tech-enabled innovation, partnership models, improved accessibility are some common themes across these names

Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Nirgunan Tiruchelvam
Rahul Shah
Tellimer Research
18 January 2021
Published byTellimer Research

Read our in-depth analysis of our top 20 here: Our 20 pandemic winners: Key takeaways.

1. Jumia (Nigeria/E-commerce)

2020 performance: +663%; market cap: $4bn

Jumia is known as the Amazon of Africa. It was founded by former McKinsey consultants and has risen 15-fold from its share price low of March 2020. The company has withdrawn from the smaller African markets and is now focusing on cash generation. At more than twice the PS valuation of Alibaba, however, its valuation is hard to defend given its high risks.

2. Sea (Singapore/E-commerce)

2020 performance: +475%; market cap: $117bn

Sea’s exponential rise has made it the largest company in ASEAN, a region of 600mn people. It was founded by the PRC-born Forrest Li, who moved to Singapore after graduating from Stanford. Its e-commerce platform has blossomed in the pandemic and its gaming business (Garena) produced Free Fire, which was the most downloaded mobile game in 2019. 

However, the cash bleed from its e-commerce business is alarming and we expect the company to falter in 2021. Its valuation is hard to justify as competition from Grab, Gojek and Tokopedia looms.

3. China Youzan (China/E-commerce)

2020 performance: +367%; market cap: $8bn

China Youzan is a service provider for merchants, to whom it offers various commercialisation products, such as Youzan WeiMall, Youzan Retail, Youzan Chain, Youzan Beauty and Youzan Education. China Youzan helps merchants set up online stores, market their wares digitally, improve customer-conversion rates and provide omni-channel services to their clients. It also provides third-party payment services. Its revenues mainly come from two segments, SaaS and Extended Services (73% of revenues, generated through a variety of value-added services to merchants) and Transaction Fees (24%, via third-party payment services).

During the first nine months of 2020, China Youzan’s SaaS and Extended Services segment posted strong 90% yoy top-line growth. Transaction Fees grew at a lower but still respectable pace of 38% yoy. The company plans to further expand its merchant services business; live-streaming e-commerce solutions is one planned innovation. The stock currently trades at a Bloomberg consensus PS of 17.8x; it is forecast to remain loss-making in this year.

4. Pinduoduo (China/E-commerce)

2020 performance: +340%; market cap: $205bn

Pinduoduo is an e-commerce platform in China that is reinventing shopping by providing a combination of heavily discounted products and entertainment. Pinduoduo does not have warehouses and acts merely as an intermediary between buyers and sellers. We think this stock could continue to run in 2021 because of its unique model.

5. Fawry (Egypt/Digital payments)

2020 performance: +330%; market cap: $2bn

Founded in 2008, Fawry is now the largest e-payments platform in Egypt. It enables its customers to pay their bills electronically, top-up their mobile phone accounts, and pay for e-tickets, cable TVs and similar other services. Fawry has 29mn active users along with a network of 194,000 agents.

Fawry’s top line performed very strongly the first nine months of 2020, climbing by 45% yoy to EGP893mn. We see good potential in the company’s goal of pioneering direct digital lending to underbanked SMEs with the help of its recently launched credit-scoring algorithm that is fuelled by behavioural data from Fawry’s large merchant network. Based on Bloomberg consensus, the stock is currently trading at 2021 PE of 102.2x and PS of 14.6x, which is well above the industry median of 44.2x and 7.7x, reflecting the business's strong growth potential. 

We identified Fawry as an EM tech stock to watch in July 2020, when the pre-unicorn company had a market cap of US$735mn.

6. WayFair Inc. (US/E-commerce)

2020 performance: +218%; market cap: $33bn

Wayfair thinks of itself as the Amazon of home furnishings and people all over the globe flocked to the website in the pandemic, including many from emerging markets, to which the company now has significant exposure.

Wayfair has expanded and changed rapidly in the Covid era and it now has a website offering a huge range of products, from office items to utensils. However, the company is spending at a faster clip than Amazon and it does not have a cloud business to support this cash burn.

7. Mercado Libre (Argentina/E-commerce)

2020 performance: +184%; market cap: $92bn

Mercado Libre is a mature business that stands a good chance of replicating Amazon’s revenue growth in the LatAm region. It has managed to ride the boom of online shopping all the way through Covid-19.

Given digital retail is still at a relatively early stage in the region, the opportunities are huge for Mercado Libre.

8. Meituan (China/Food delivery)

2020 performance: +179%; market cap: $238bn

Meituan is the world’s largest food delivery platform: it delivers 25mn meals a day (which is more than the entire US and European food delivery market), it is the only food delivery company that is operationally profitable and it has nearly 500mn users.

Meituan also has aspirations of becoming China’s 'everything App' in 2021 – food delivery may be just the tip of the iceberg.

9. East Money Information (China/Online investment services)

2020 performance: +134%; market cap: $47bn

East Money Information is a Shanghai-based company engaged in online investment services. Its platform, eastmoney.com, is a one-stop solution for investments, and provides numerous services, including investment information and advisory, financial data, securities trading, micro loans and internet advertising. The company’s revenues grew strongly during 2020, with Q3 revenues up by 134% yoy and profits rising by 203%.

We see strong growth potential for investech services in China as only 15% of investments are currently made through digital channels. US consultancy Oliver Wyman expects this proportion to grow to 25% in the next five years, with a CAGR of 22% in the volume of online AuM. The shares are currently trading at 2021 PE of 59.2x and PS of 34.5x (Bloomberg consensus), multiples that are significantly above industry median. 

10. Yeahka (China/Digital payments)

2020 performance: +126%; market cap: $3bn

Yeahka is a payments-based technology platform in China providing payment and business services to merchants and consumers. Yeahka conducted its IPO in June 2020, since which time its shares have more than doubled in price. The company has c14% domestic market share in QR code transactions and 1.3% in terms of total transaction value, ranking 10th among China’s third-party payment service providers.

Yeahka aims to use data from customers and merchants to better understand their needs and to then offer a rich variety of value-added technology-enabled business services (eg merchant SaaS products, marketing services and fintech services). Revenue growth was weak in 2020 (5% yoy in H1 2020, versus the strong growth that industry peers recorded), but its valuation multiples also appear less demanding, with Bloomberg consensus 2021 PE of 28.9x (44.2x for peers) and PS of 4.5x (versus 7.7x). 

11. GHL Systems (Malaysia/Digital payments)

2020 performance: +111%; market cap: $483mn

GHL Systems is a leading ASEAN payment services provider, with its main operations in Malaysia, the Philippines, Thailand, Indonesia, Cambodia and Australia. The company's biggest market is Malaysia, which accounts for 78% of its revenue. The group mainly operates via three segments: Transaction Payment Acquisition (top-ups, bill collections, direct merchant payments, etc.); Shared Services (sales and rental of EDC (electronic data capture) terminals); and Solution Services (sale and maintenance of hardware and software products). GHL manages and oversees more than 397,500 payment touchpoints across its ASEAN markets.

2020 operating results have been weak, with revenues down by 5% and profits falling by over 90% in the first three quarters of 2020, due to a combination of higher operating expenses and the weak top-line performance of the Shared Services segment. Nevertheless, we see strong potential in the e-pay segment (part of the Transaction Payment Acquisition segment), which offers online payment services directly to consumers. The stock is currently trading at Bloomberg consensus 2021 PE of 44.0x (in line with peers) and PS of 5.0x (lower than 7.7x for peers). 

We identified GHL as an EM tech stock to watch in July 2020, when the company had a market cap of US$342mn.

12. Stoneco (Brazil/Digital payments)

2020 performance: +110%; market cap: $23bn

Stoneco was incorporated in 2014 and is a leading provider of financial technology solutions in Brazil (mainly in the payments area), empowering merchants to conduct electronic commerce seamlessly across in-store, online and mobile channels. Stoneco operates five companies: i) Stone, which is primarily focused on providing point-of-sale (POS) solutions for accepting payments; ii) Pagar.me, which helps small business owners accept online payments quickly; iii) mundipagg, a full-featured e-commerce gateway that connects e-commerce sites to the payment network of their choice; iv) Equals, a smart financial management platform structured to serve companies dealing with multiple payment methods; and v) Cappta, POS device software that enables businesses to work with various brands, issue receipts and automate their payments systems.

Stoneco recorded strong volume growth in 2020, with transaction value growing by 48% yoy in Q3 2020 and revenues rising by 39%. The company aims to roll out its ABC platform, an integrated financial platform for small and medium-sized businesses that brings with it significant security and convenience benefits. Based on Bloomberg consensus, Stoneco is trading at 78.0x 2021 PE and 25.5x PS, which is significantly higher than peers given the company’s strong growth profile. 

We identified Stoneco as spearheading the digital payments charge in a September 2020 report, when the company had a market cap of US$16.6bn.

13. Delivery Hero (US/Food delivery)

2020 performance: +88%; market cap: $33bn

Delivery Hero is the leading food delivery player in Europe and now operates in 50 countries, growing through acquisitions. Its footprint includes numerous emerging markets, from Iraq to South Africa.

However, the company has never made a profit and suffers from the chronic issue facing all food delivery firms – the last mile problem. Food delivery lacks economies of scale, as delivery people can only conduct around two deliveries an hour. The more revenue Delivery Hero generates, the more its operating cashflow losses mount.

14. Hightech Payment Systems (Morocco/Digital payments)

2020 performance: +73%; market cap: $517mn

Hightech Payment Systems (HPS) was established in 1995 in Morocco and is currently operational in more than 90 countries, with a focus on Africa (44% of revenues) and Asia (22% of revenues). Its flagship product is PowerCARD, which is a suite of software solutions that covers the entire payments value chain and enables payments through HPS’s omnichannel solution. The company earns revenue from the initial subscription to these systems and also provides subscription upselling, maintenance and licence services to its customers. Over 400 institutions (eg NDB Bank and BMCE Bank) are using PowerCARD, which generates 74% of HPS’s revenues. The company's other activities include processing (switching services) and services (control and performance of information systems).

Revenue grew by just 2% yoy in the first three quarters of 2020 due to weakness in PowerCARD revenues (-2%), although the processing segment performed well (+24% yoy). The stock currently trades at 2021 PE of 39.8x and PS of 5.9x (Bloomberg consensus), lower than the industry medians of 44.2x and 7.7x, respectively. 

We identified HPS as spearheading the digital payments charge in a September 2020 report, when the company had a market cap of US$363mn.

15. PagSeguro (Brazil/Digital payments)

2020 performance: +67%; market cap: $18bn

PagSeguro, launched in 2006, is (mainly) an online/mobile payment-based e-commerce service. Specifically, it is a payments facilitator for entrepreneurs, sellers and buyers; any person or entity can create an account on the platform through which they can receive and make payments easily and safely. Some 6.3mn active merchant accounts were registered as at end-Q3 2020. The firm also has a banking division called PagBank, which offers payments and other digital banking services, such as investment and lending products. PagBank is growing at a very strong pace, with transaction value up by 286% yoy in Q3 2020 and the user base growing by 257% yoy, with 6.7mn active users. It is likely to be a key growth engine for some time, in our view.

According to Bloomberg consensus, the stock currently trades at 44.3x forward earnings and 10.0x 2021 revenues; revenue multiples are higher than the industry median of 7.7x, but, considering the twin growth drivers, this premium can be justified.

We identified PagSeguro as an EM tech stock to watch in July 2020, when the company had a market cap of US$12.29bn.

16. Krungthai Card (Thailand/Digital payments)

2020 performance: +51%; market cap: $7bn

Krungthai Card (KTC) was established in 1996 and is a subsidiary of Krung Thai Bank. The company's main operating lines are credit cards and personal loans, but it also offers payment services and has introduced various products to tap the digital opportunity in Thailand, such as digital insurance, instalment purchases and online shopping. It has also partnered with other fintechs like Samsung Pay and Fitbit Pay. The company operates a mobile app, KTC Mobile, through which these products can be conveniently accessed. KTC currently has c2.6mn credit cards in service, with a market share of 10.7%. In terms of personal loans, it has an outstanding balance of cBDT30bn, with a market share of 5.2%.

During the first three quarters of 2020, the company's revenues and profits declined yoy, by 1% and 5%, respectively, largely due to an 8% decline in credit card spending and a similar decline in personal loans outstanding. Going forward, we think KTC’s value-added services, online payments and digital lending could drive growth as the credit card industry is approaching maturity. The company also aims to use technologies like artificial intelligence and machine learning to improve its offerings. Based on Bloomberg consensus, the company currently trades at 2021 PE of 35.0x and PS of 9.5x.   

17. Huifu Payment (China/Digital payments)

2020 performance: +35%; market cap: $567mn

Huifu Payment was established in 2006. It provides payment services to small and micro merchants in China, as well as to larger customers in the aviation, health, education, logistics, retail, funds and industrial chains sectors. Huifu supports cross-border e-commerce and also provides account services, marketing services, data services and financial value-added services to more fully meet merchants' all-round needs. Integrated merchant acquiring is the company’s main activity (76% of revenues) followed by software services (SaaS, 14%), industry solutions (9%) and cross-border businesses (1%).

During H1 2020, Huifu's revenues declined by 9% yoy due to the weak performance of its integrated merchant-acquiring (down 14%) business and its industry solutions segment (down 41%). However, the SaaS segment performed well (+51%), helped by heavy development and marketing efforts. Management sees further strong growth potential in the SaaS segment and in the recently launched Omni-channel for micro merchants, Huilaimi. The stock is currently trading at valuations well below those of other fintech peers, with 2021 PE at 10.9x and PS of 0.8x (Bloomberg consensus), which may reflect the company's still high exposure to its mature merchant-acquiring business. 

We identified Huifu as spearheading the digital payments charge in a September 2020 report, when the company had a market cap of US$400mn.

18. ZhongAn Online P&C Insurance (China/Insurtech)

2020 performance: +29%; market cap: $7bn

ZhongAn Online P&C Insurance was founded in 2013 and is the first online-only insurance company in China with a completely branchless business model. The company provides insurance in five main areas, namely health (45% of revenues), lifestyle consumption (28%), consumer finance (11%), auto (7%) and travel (4%). In 2019, the company served over 480mn customers with more than 8bn insurance policies.

During H1 2020, ZhongAn's revenues grew by 15% yoy, with particularly strong expansions in the Health (+116%) and Lifestyle Consumption (+40%) segments, although other segments performed poorly due to the pandemic.

We see strong potential in China’s insurtech business as only 7% of insurance is currently sold through digital channels – Oliver Wyman expects this to increase to c22% in the next five years, with volumes growing at a CAGR of 38%. As per Bloomberg consensus, ZhongAn currently trades at a 2021 PE of 57.5x, above the peer median of 44.2x, and a PS of 2.3x, which is well below the 7.7x industry median.

19. Ozon (Russia/E-commerce)

2020 performance: +23%; market cap: $9bn

Ozon is Russia’s e-commerce leader. It didn't list until November but still rose 20% in 2020.

The country has deep internet penetration with 95m active users, but e-commerce penetration is only at 10% and is rising sharply in the pandemic. Ozon is reaping the rewards of this trend and has huge potential. Our research provider Alfa wrote about the company in-depth recently.

20. Allegro (Poland/E-commerce)

2020 performance: +12%; market cap: $22bn

Allegro is Poland’s e-commerce leader and listed in October in Warsaw. Its valuation is stretched, but should stay that way. It has a long operating history and massive market share, unlike Jumia and Sea say, and could receive a windfall from its inclusion in the MSCI. Moreover, Covid could change consumption patterns in Allegro’s favour.