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SWITZERLAND

Apart from as noted below, the Chikara Funds have not been and cannot be registered with the Swiss Financial Market Supervisory Authority (FINMA) and cannot be distributed in Switzerland.

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Economic Development and the Role of Stock Market Investors

  • May 2023
  • | Jonathan Asante
  • | Global Emerging Markets team

Economic measures such as GDP growth and inflation are common news items.  

They are intended to show the economic experiences of the population.   But the team is interested in how success is achieved and why some countries seem to have done so much better than others at it.  Very far from the usual GDP forecaster’s playbook, measures which aim to capture how different parts of a society interact (for example how level the playing field is) are particularly interesting to us. Democracy, press freedom, literacy and social mobility all add to our understanding.

Another such measure is perceived public sector corruption, such as that published by a non-profit organisation, Transparency International.  In addition to suggesting an answer to the question of why poor countries are poor, it also hints at a role for investors in emerging markets, that we hope many people might endorse, for how their pensions are invested.

Economic Development and the Role of Stock Market Investors

Why Lower Income Countries Are Lower Income

Some observations are suggested by looking at Transparency International’s Corruption Perceptions Index (2022), covering 180 countries (www.transparency.org) . It uses a scale of zero to 100, where zero is “highly corrupt” and 100 is “very clean”.

  1. The world’s most successful economies are in the top quartile (on the “very clean” end of the scale) while the least successful are in the bottom (i.e., “highly corrupt”).
  2. Formerly lower income countries which became far more prosperous in the last forty years (South Korea, Chile, Singapore, Taiwan, Botswana) are in the top half in terms of perceived corruption.
  1. Neither China with a middling score of 45 nor India with a score of 40, should elicit huge cause for optimism – Ghana for example with a perceived corruption score of 43 is currently experiencing one of its worst financial crises in decades.
  1. We consider that “poor” countries are so because of the way the elite relates to everyone else in a country. In lower income countries ‘the system’, as evidenced by public sector corruption perceptions, is far more obstructive to individual opportunity than in richer ones. In our opinion, the most extreme example of misuse of power is currently the ruling dynasty of North Korea although it actually scores slightly better than 5 other countries!  As a business owner told me many years ago – “Under Gaddafi at least you knew who to bribe in Libya.’

The fourth point would leave us struggling to own branded luxury goods sellers for clients.  The inflated cost of those London department store shopping bags pales into insignificance compared to the lost opportunities at home that these purchases represent.  Large companies in emerging markets benchmark indices might also be part of the problem rather than the solution.  State-affiliated companies, those owned by powerful oligarchs or relying on government patronage might all be stifling rather than promoting the conditions for the poor to get better off.  It therefore becomes highly possible that investing in emerging markets funds inadvertently helps to slow the very progress that these funds are supposed to be capturing! 

This worrying last observation is one of several reasons we feel that asking broad questions of our companies far beyond simply how much profit they are likely to make, will serve our clients better in the long term.  No business operates in a vacuum and the more people it benefits, the stronger its social license to operate and the bigger that business can ultimately become for its shareholders.

Important Information

This document does not purport to provide investment advice and should not be relied on for the purposes of any investment decision. It is not an offer to sell or the solicitation of an offer to purchase shares. In particular this document is not intended for distribution in the United States or for the account of U.S. persons (as defined in Regulation S under the United States Securities Act of 1933, as amended (the Securities Act)) except to persons who are "accredited investors" (as defined in Rule 501(a) under the Securities Act).  Chikara Investments LLP (Chikara) is not registered with the United States Securities and Exchange Commission as an investment adviser.  This document and its contents are confidential and must not be copied or otherwise circulated to any other person. Certain assumptions may have been made in the calculations and analysis in this document which have resulted in returns detailed herein. This document is based upon information which Chikara Investments LLP (Chikara) considers reliable, but no representation is made that it is accurate or complete and nor should it be relied upon as such. All information and research material provided herein is subject to change and this document does not purport to provide a complete description of the funds, securities or other investments or markets referred to or the performance thereof. All expressions of opinion are subject to change without notice. This document is issued for the purposes of section21 of the Financial Services and Markets Act 2000 by Chikara Investments LLP (Chikara), 31-32 St. James’s Street, London SW1A 1HD, who are authorised and regulated by the Financial Conduct Authority.