Global E-commerce Outlook 2H 2026: Rough waters

Over the past year, the global e-commerce sector has faced pressure from US tariffs and supply chain disruptions linked to heightened geopolitical tensions in the Middle East. At the same time, Chinese e-commerce players such as Alibaba, JD.com and PDD have been contending with their own set of headwinds, including intensifying domestic competition and the impact of US tariffs, both of which have put pressure on profit margins. As a result, many of the companies under our coverage (within the PNQI ETF) have declined by more than 10% on a year-to-date basis, weighing on the ETF's overall performance.

Despite navigating these challenges relatively well, some companies have highlighted emerging areas of stress. For instance, Sea Limited, the parent company of Shopee, maintained a conservative full-year GMV growth guidance of 25% despite delivering 30% growth in the first quarter, explicitly citing macroeconomic uncertainties. Amazon, meanwhile, noted in its second-quarter guidance that it expects higher transportation costs due to fuel inflation, although these are expected to be partially offset by a newly implemented fuel and logistics-related FBA surcharge.

In this article, we take a deeper look at the investment case for the global e-commerce sector from a top-down perspective, with the aim of identifying both the risks and opportunities associated with investing in the industry.

Still Room for E-commerce to Grow

In 2024, global online Gross Merchandise Value (GMV) reached US$7.2 trillion and is on track to surpass US$7.9 trillion this year. The industry remains highly concentrated, with just ten platforms accounting for more than 63% of global e-commerce GMV. Alibaba leads with approximately 19% of total online GMV, followed by Amazon at 12%.

According to Activate Consulting, global e-commerce GMV is expected to grow at a compound annual growth rate (CAGR) of 6.84% between 2026 and 2030, resulting in a projected market size exceeding US$10 trillion by 2030.

The convenience of online shopping is expected to remain a key driver of e-commerce growth. MercadoLibre is poised to lead among major platforms, with sales expected to increase by more than 20% as its commerce and fintech businesses continue to expand across Latin America despite growing competition from Shopee. Amazon's third-party sales are also expected to grow by more than 10%, outperforming the broader peer group average.

Businesses built entirely online are likely to continue driving the majority of e-commerce growth. However, traditional brick-and-mortar retailers could gradually increase their share as the pandemic-driven shift towards online shopping becomes more entrenched. E-commerce could account for 30% or more of apparel sales by 2030, while penetration in the automotive sector is likely to remain relatively low, as vehicle sales, repairs and maintenance services are still predominantly conducted in person.

Figure 1: E-commerce % in total sales

Table 1: E-commerce growth for various platforms

E-commerce Sector Is a Model Example of the AI Application Layer

The increasing adoption of video commerce, app-based shopping and social commerce has gained significant momentum in recent years. When combined with agentic AI and generative AI (GenAI), these trends have the potential to enhance product discovery and improve conversion rates for online retailers.

The vast array of brands and products available online can often overwhelm consumers. By integrating GenAI into digital platforms, retailers can improve search and product discovery, optimise pricing and promotional strategies, deliver more relevant product recommendations, and reduce fraud. AI can also enhance customer service while accelerating product design and creativity. According to Shopify, GenAI is already assisting e-commerce shoppers throughout the purchasing journey, generating conversion rates of 2.5% to 3.0%, while also improving productivity and margins.

Search bars are expected to evolve into conversational commerce gateways, as the first interaction with a purchase-minded consumer increasingly determines conversion and monetisation outcomes. Over time, a greater share of e-commerce profits is likely to accrue to platforms that control AI-driven discovery and checkout experiences, as they are best positioned to monetise purchase-ready traffic through advertising, merchant services, payments and fulfilment.

Amazon's deeper integration of Alexa into the shopping experience, through its AI-powered shopping assistant previously known as Rufus, illustrates the potential for agentic commerce to improve profitability by increasing conversion rates on traffic the platform already owns. In its latest quarterly results, Rufus's monthly active users increased by more than 115% year-on-year during the first quarter, while engagement with the AI shopping assistant surged by nearly 400% compared with the same period last year across all user segments.

Figure 2: Shoppers used Alexa for shopping to sent price alerts notifications.

 

Source: AmazonNews.

Marketplaces such as eBay are also leveraging agentic shopping tools, and the results have been encouraging. eBay has enhanced its generative AI listing tool with an AI agent that guides sellers on which product photos to capture, helping them create more compelling listings and increasing the likelihood of a successful sale. The system automatically generates titles, categories, item specifics and pricing recommendations by combining advanced AI models with eBay's product knowledge graph and real-time transaction data.

The tool has been rolled out to new and reactivated sellers on iOS and Android in the United States, reducing average listing times by more than 25%, increased new listing creation rates by over 50%, and driven double-digit growth in both items sold and gross merchandise volume (GMV) per seller.

In addition, eBay has begun integrating agentic AI into its core search experience, enabling shoppers to search using natural, conversational language. This creates an experience similar to interacting with a knowledgeable sales associate who understands a customer's preferences, style and shopping history. By making product discovery more intuitive and personalised, agentic AI has the potential to improve user engagement, increase conversion rates and strengthen customer retention over the long term.

Figure 3: eBay revenue re-accelerates

AI-Powered Advertising: Another Key Growth Driver

AI-powered advertising represents another important growth opportunity for leading e-commerce platforms. Across the sector, major players are increasingly relying on AI to drive growth within their advertising businesses by improving campaign effectiveness, enhancing targeting capabilities and streamlining content creation.

Amazon provides a notable example. Amazon Ads generated US$17.2 billion in revenue during the first quarter of 2026, representing year-on-year growth of 22%. Chief Executive Officer Andy Jassy specifically highlighted the company's "innovative AI tools that invent and deliver for advertisers" as a key pillar of its growth strategy, including efforts to expand advertising reach across both streaming and shopping platforms. One notable initiative is Amazon's Creative Agent, an agentic AI solution that plans and executes end-to-end advertising creative workflows. The company has expanded the tool across major international markets, including Canada, France, Germany, India, Italy, Spain and the United Kingdom.

Alibaba provides perhaps the clearest example of a direct link between a named AI product and advertising revenue growth. Customer management revenue increased by 10% year-on-year in the first quarter of fiscal year 2026, with management explicitly attributing the improvement to higher take rates driven by software service fees and the growing adoption of Quanzhantui, its AI-powered marketing platform. Alibaba described the solution as being particularly valuable for small and medium-sized enterprises seeking to improve marketing efficiency and campaign performance.

MercadoLibre also highlighted the growing contribution of AI within its advertising ecosystem. In its first-quarter 2026 shareholder letter, management disclosed the launch of its first AI-powered search experience, moving away from a traditional keyword-based architecture towards one built around large language models (LLMs). Early results in Brazil and Mexico demonstrated improvements in both conversion rates and click-through rates for sponsored listings, creating a direct pathway to higher advertising revenue. Meanwhile, MercadoLibre's Seller Assistant, an AI-powered tool designed to support merchants, recorded daily active user growth of more than 40% month-on-month in March.

These developments highlight how AI is becoming an increasingly important driver of advertising monetisation across the e-commerce sector. By improving product discovery, enhancing ad targeting, automating campaign management and increasing merchant productivity, AI has the potential to support sustained growth in high-margin advertising revenue, further strengthening the profitability of leading e-commerce platforms.

Figure 4: Amazon advertising remains robust

Competition Remains the Key Risk for the Industry

While the global e-commerce Total Addressable Market (TAM) continues to expand, industry growth is not sufficient to satisfy all market participants. As a result, competition is intensifying as established players increasingly encroach on one another's territories. Brazil provides a clear example of this trend, having long been regarded as a stronghold of MercadoLibre.

Shopee, which maintained its presence in Brazil after withdrawing from Argentina, Chile, Colombia and Mexico in 2022, has consistently outpaced MercadoLibre in terms of items sold and was reportedly able to briefly claim the top position in Brazil by order volume. This competitive pressure has prompted a strategic response from MercadoLibre. To defend consumer engagement, the company reduced its free-shipping threshold in Brazil from 79 reais to just 19 reais (approximately US$3.40), while also lowering seller shipping costs by as much as 40%. These initiatives represent a meaningful sacrifice in profitability and were implemented in response to Shopee's aggressive pricing strategy and logistics subsidies.

Shopee is not alone in targeting the region. Amazon has invested more than US$10 billion in Brazil, with roughly a quarter of that amount deployed over the past 18 months. The company has also waived fees for merchants adopting its fulfilment services in an effort to attract sellers to its ecosystem. Meanwhile, PDD Holdings' Temu reached 105 million monthly active users across Latin America during the first half of 2025, highlighting the speed at which the region's competitive landscape is becoming increasingly crowded.

The underlying theme across these markets is consistent. Chinese-origin platforms such as Temu, Shein, TikTok Shop and, to a certain extent, Shopee, are leveraging manufacturing cost advantages, aggressive subsidies and social commerce integration to erode the pricing power and profitability of incumbents that previously operated in relatively insulated regional markets. Rather than retreating, incumbent platforms have responded by accelerating investments in logistics, fulfilment, marketing and customer acquisition. While this may help preserve market share, it also increases operating costs and places additional pressure on margins across the e-commerce sector.

That said, markets with stricter regulatory frameworks may offer some protection to incumbent players. In the United States, the government ended the duty-free de minimis exemption for low-value imports from China in May 2025. Previously, the exemption allowed e-commerce sellers to ship goods valued at US$800 or less into the country without incurring duties. The European Union is expected to follow a similar path, having agreed to impose a €3 handling fee on low-value parcels imported from non-EU countries, with implementation scheduled for 1 July. The previous framework exempted goods valued below €150 from customs duties.

These regulatory changes could help narrow the pricing advantage enjoyed by cross-border e-commerce platforms, potentially easing some of the competitive pressure faced by incumbent regional players over the longer term.

Figure 5: Shein and Temu customer growth has slowed

Geopolitical tensions as another risk for the industry

The direct operational impact of geopolitical tensions on global e-commerce players has generally been limited, as companies are often able to pass through higher logistics costs to sellers. For example, in 2022, Amazon imposed a 5% fuel and inflation surcharge on US third-party sellers using Fulfilment by Amazon. More recently, the company began charging third-party sellers a 3.5% fuel and logistics surcharge on fulfilment fees, reflecting higher costs associated with ongoing geopolitical disruptions and elevated transport expenses.

Instead, the more significant impact tends to be indirect, primarily through macroeconomic channels. Geopolitical tensions can contribute to slower consumption growth as consumers face higher inflation and rising unemployment, both of which weigh on discretionary spending. In some emerging markets, foreign exchange volatility becomes the dominant macro concern, as illustrated by MercadoLibre’s experience in managing Argentina’s hyperinflationary environment.

On the other hand, low-cost platforms tend to be more exposed to changes in logistics costs, as price-sensitive consumers are generally more sensitive to increases in delivery and fulfilment expenses. Rising logistics costs stemming from conflicts in the Middle East have added pressure to China’s low-cost e-commerce exporters, such as PDD Holdings and Shein. If these costs remain elevated or increase further, companies may shift to alternative modes of transport or delay certain shipments in order to manage margins.

Overall, while geopolitical tensions do not typically disrupt core platform operations directly, they exert meaningful secondary effects through inflation, consumer demand, foreign exchange volatility and logistics cost pressures, all of which can influence profitability across the e-commerce ecosystem.

Figure 6: China’s low cost ecommerce exports have plateaued

China has its own issue, but conditions are improving

Chinese e-commerce players are contending with their own structural challenges. One of the most disruptive developments has been the intensifying price war in food delivery, widely regarded as one of the most aggressive episodes of platform competition in China’s technology sector.

What began with JD.com's formal entry into the food delivery market in February 2025—directly challenging the long-standing duopoly of Meituan and Alibaba’s Ele.me—quickly escalated into a subsidy-driven arms race. Across just two quarters, the industry is estimated to have collectively deployed over RMB 100 billion (approximately US$14 billion) in subsidies. Alibaba committed RMB 50 billion to support its Taobao Instant Commerce initiative (later rebranded Taobao Flash Buy) in July 2025 alone, while JD.com allocated RMB 1 billion to recruit restaurant partners as part of its rollout of 10,000 self-operated 7Fresh kitchens.

The strategic rationale for the challengers was not food delivery profitability itself, but rather the pursuit of ecosystem dominance. Food delivery served as a high-frequency entry point to position their platforms as “everything apps”, enabling cross-selling into broader retail, grocery and instant commerce services.

The competitive fallout has been significant and unevenly distributed. Meituan bore the brunt of the pressure: its Core Local Commerce segment swung from a RMB 52.4 billion profit in 2024 to a RMB 6.8 billion loss in 2025, with full-year net profit turning into a RMB 23.4 billion loss, compared with a RMB 35.8 billion profit in the prior year. Its share price also declined by more than 30%. For Meituan, the episode represented a direct defence of its core moat, whereas for Alibaba and JD.com, the offensive was largely absorbable given the strength of their core e-commerce cash flows—Alibaba ending 2025 with approximately US$80 billion in cash and JD.com with around US$32 billion.

Regulatory intervention eventually helped stabilise the situation. In mid-2025, China’s State Administration for Market Regulation summoned seven major platforms, including Meituan, Alibaba, JD.com and PDD Holdings, urging an end to “irrational competition”. This was followed in April 2026 by a combined RMB 3.6 billion fine across platforms relating to food safety and verification issues.

The competitive intensity is now easing. Meituan’s Q1 2026 operating loss narrowed sharply to RMB 6.5 billion from RMB 16.1 billion in the prior quarter, while its food delivery business achieved slight per-order profitability in April and May 2026.

For Alibaba, the impact of the price war has been evident in profitability. Adjusted EBITA in its China e-commerce segment declined by 40% year-on-year in the latest quarter, although revenue in its quick commerce segment grew by 57% year-on-year.

Nonetheless, We believe the sector is moving beyond the most intense phase of the price war.. While recovery may take time, we expect a gradual earnings rebound in 2026, with growth momentum strengthening further into 2027 and 2028.

Read More: China’s delivery price war nears inflection: positioning ahead of the turn

Figure 7: China e-commerce operating margins

Selective within Global E-commerce sector

While the performance of the global e-commerce sector has been lacklustre on a year-to-date basis, the industry continues to face headwinds, including rising logistics costs amid heightened geopolitical tensions and intensifying competition across key markets.

It is also important to note that many major e-commerce players are not purely dependent on their e-commerce segments. For example, Amazon derives approximately 40% of its revenue from e-commerce, Sea Limited around 70% from Shopee, and Alibaba approximately 60% from e-commerce. As a result, performance in non-e-commerce segments can have a significant impact on overall company results.

We favour a selective investment approach, with a preference for companies that demonstrate clear competitive advantages. Sea Limited, for instance, maintains a dominant position in Southeast Asia while continuing to gain market share in Latin America, supported by its high-growth, high-margin financial services segment, SeaMoney. Amazon continues to be supported by AWS and advertising, two higher-margin businesses that help strengthen overall profitability. Meanwhile, Chinese e-commerce players such as Alibaba are trading at attractive valuations relative to historical levels, with earnings recovery expected in the coming quarters.

Overall, we continue to favour a selective approach to the sector. For diversified exposure, we continue to recommend the Invesco NASDAQ Internet ETF, which provides access to leading e-commerce and internet platform companies while benefiting from broader digitalisation and AI adoption trends.

Declaration:

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.