Global Competitiveness In Emerging Markets

The Global Competitiveness Index (GCI) ranks countries according to how hospitable they are to promoting economic growth and prosperity. The rankings have been published by the World Economic Forum since 2004, allowing for a measure of how countries are progressing in terms of their relative competitiveness in the global economy.

The GCI seeks to evaluate 12 different factors in three main areas: the quality of physical infrastructure and institutions; the ease of doing business (macro-economic stability, and open and flexible markets for goods, labor and capital); and the quality of education and ability to innovate.

The GCI 2017 report (WEF) and an analysis of the trends of the past five years provide some interesting insights on prospects for different emerging market countries. The chart below shows the 2017 rankings for most of the significant emerging market countries and the evolution over the past five years.

  • Several important countries are secure in the top quartile segment of the ranking. Taiwan, Malaysia and South Korea all have reached elite status and are stable.
  • China continues to gradually improve its ranking, from 29 in 2013 to 27 in 2017, and is likely to secure its place in the top quartile. China has followed in the path of its East-Asian neighbors, making this region one of the most competitive in the world and increasingly the center of gravity of the global economy. China’s continuous positive evolution is driven by improvements in education and innovation, which is in line with the country’s strategy to move up the industrial value chain.
  • Both Thailand and Indonesia have shown impressive progress over the past five years, moving into the top quartile.
  • India, on the back of Prime Minister Marendra Modi’s reforms, has improved its ranking dramatically, from 59 to 40. The areas of greatest improvement have been confidence in public institutions, infrastructure and macroeconomic stability.
  • In the EMEA region (Europe, Middle East and Africa), Russia is a surprising positive highlight. Russia has moved from 67 to 38 over five years, approaching the top quartile, as President Putin’s “order and progress” regime has gained traction, reflected in improved infrastructure and public services. On the other hand, South Africa has taken a spill, moving from 52 to 61, as declining public services and corruption have impacted business confidence. Turkey has also suffered an alarming decline, from 43 to 53, the result of political instability and a growing estrangement from Europe.
  • Latin America can be singled out for its relative decline, particularly compared to comparable middle-income economies in Asia and Eastern Europe. Though Chile has secured its ranking as a top quartile “elite” economy,” Brazil has had the worst collapse of any country, moving from 48 to 80. The rest of the region is stable in its mediocrity, with Argentina the worst and Mexico the least bad. Peru has seen a concerning decline from a ranking of 61 to 72. The region of late has been severely impacted by recession and corruption scandals, resulting in declining public trust in institutions and low business confidence.

India Watch:

  • India’s electrical vehicle dreams (CSIS)
  • India’s Industrial policy (Live Mint)
  • India’s imminent economic crisis (Live Mint)

China Watch:

  • Buffett’s bet on BYD is working (QZ)
  • Meet China’s evolving car buyer (McKinsey)
  • Beijing praises patriotic entrepreneurs (SCMP)
  • Reconnecting Asia (CSIS)

China Technology Watch:

  • FT has lunch with JD.com’s Liu Qiangdong (FT)
  • China leads the world in digital economy (McKinsey)

EM Investor Watch:

  • Gazprom knocks Exxon off its pedestal Forbes

Technology Watch:

Investor Watch:

Ray Dalio on market valuation:

Do you see a disconnect between the U.S. stock markets being at an all-time high, while at the same time the economy continues to grow slowly?

No, I don’t. Markets, in general, are driven by the interest rate. As interest rates go down, as they have, that’s helped. Second, the purchases of financial assets by central banks have pushed asset prices up. Third, the expected returns of bonds and equities going forward are at relatively normal premiums to the existing short-term interest rate.

What are the implications of all that?

People buy profits, not the economy. So if the corporate tax rate is cut, a company is worth more even though the economy might or might not pick up on that. If regulation is reduced, that stimulates business. It might have other consequences, but it causes profits to rise.

Any other critical reason for what’s happening in the economy and market?

Technology, which is improving profitability, is also worsening [employment]. That worsens the economy because technology is replacing people [in jobs]. Improving profitability [through technology] is good for companies but not good for the economy as a whole because the people losing jobs are also the people who are more inclined to spend income. I call that group the lower 60%. So technology helps profits but hurts employment and helps to cause a slower economy at the same time it has caused companies to be worth more.

Has the U.S. ever been in a situation like that before?

We had a similar one between 1935 and 1940. I would say that 1937 [during the Great Depression, two years before the start of World War II] is most like the year today. We had the same sort of debt crisis; interest rates went to zero and the central banks printed a lot of money and bought financial assets, which went up in price. We had the same sort of wealth gap and the same sort of populism around the world.

So is there a lesson from 1937?

It’s very important that the Federal Reserve be very cautious and slow to tighten monetary and fiscal policy because we have asymmetrical risks: many more risks on the downside than on the upside. And be cautious about how political and social conflict is handled. Can we work together, or are we going to be split? Even though the stock market is at its peak and the unemployment rate is at a low, for the bottom 60% it’s a bad economy. We must not have an economic downturn.

What’s your take on the long-running debate about active vs. passive management and the move toward ETFs and other passive investments?

The question is: How much alpha can I buy by going to [a manager]? That alpha game is a zero-sum game. So don’t expect, on average, to get alpha because when somebody buys, somebody else has to sell. It’s like at a poker table: somebody will take money from somebody else — and there will be better players. There will always be smart people who will be able to make better decisions and pursue alpha. The challenge is to find them because those who are good at it are largely closed to new investors.