Please see the below article from EPIC Investment Partners detailing their insights into Institutions, Development and Market Opportunities in global markets. Received this morning 15/10/2024.
In a world where economic fortunes seem as capricious as a game of Monopoly, the Royal Swedish Academy of Sciences has rolled the dice and awarded the Nobel Memorial Prize in Economic Sciences to Daron Acemoglu, Simon Johnson, and James A. Robinson for their groundbreaking studies on how institutions are formed and affect prosperity.
Their research provides valuable insights into the role of institutions in economic development, offering food for thought for investors eyeing opportunities in emerging markets. The laureates’ work emphasises that countries with inclusive institutions that protect property rights, enforce the rule of law, and promote broad-based economic participation are more likely to achieve sustained economic growth.
This framework offers a new lens through which to evaluate potential opportunities in developing markets. Some Middle Eastern countries, such as the United Arab Emirates, Saudi Arabia, and Egypt, have been making strides in institutional reform, potentially setting the stage for robust economic growth. While recent unrest in the region may give investors pause in the short term, these institutional improvements suggest attractive investment opportunities for those with a patient outlook.
In contrast, China presents a fascinating counterpoint to the laureates’ thesis. Despite lacking some of the inclusive institutions emphasised in their research, China has achieved remarkable growth due to factors such as gradual institutional reform, state-led development, a vast domestic market, and an export-oriented growth model. China’s unique model suggests significant growth potential, even if its institutions do not fully align with the theoretical ideal.
While recent market volatility in China may give investors reason for caution in the near term, the long-term growth story remains compelling for those who can stomach the bumps along the way. While the Nobel-winning research highlights the importance of inclusive institutions for long-term economic success, it also reminds us that the path to development can take different forms. A nuanced understanding opens up a world of opportunities, whether it is the reforming Middle Eastern economies or China’s unique growth model.
As always, thorough due diligence and a keen understanding of local contexts remain crucial when considering investments in emerging markets. But today’s Nobel announcement serves as a timely reminder that in the grand game of global economics, sometimes the most valuable properties are the institutions on which they are built.
For investors playing the long game, building a portfolio on a solid institutional foundation may be the key to rolling a double six.
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Alex Clare
15/10/2024