Emerging Market Stocks are Struggling in an Intangible World (Economist)
by
Developing economies spend far less on r&d. Of those typically included in emerging-market indices, only South Korea and Taiwan surpass American r&d spending, which sits at 3.5% of gdp. The equivalent figure in China is 2.4%, and the government’s campaign against the country’s most successful consumer-tech firms—like Didi, in ride-sharing, and Alibaba, in e-commerce—bodes ill for intangible-focused firms. According to the World Bank, r&d investment runs to less than 1% of gdp in India, Indonesia, Mexico and South Africa.
Firms that invest in intangibles are often found in bustling cities, of which emerging markets have no shortage. But they also need reliable governance and legal systems, so that investments can be protected from copycats. Openness to foreign expertise and cross-border collaboration are also crucial. Given the absence of these conditions in many developing economies, it may be a while until emerging-market returns, and thus the performance of emerging-market stocks, match those in the rich world.READ MORE(Google Cache)
