Experienced emerging markets investors know that demographics have long been cited as one of the reasons to invest in developing economies.
On a related note, immigration trends further add to the case for emerging markets as more people leave smaller developing economies for larger ones, such as Brazil and India. Studies suggest that with new immigration to developing nations, innovation picks up, bringing interesting implications for investors.
Among exchange traded funds, the Emerging Markets Internet Ecommerce ETF (EMQQ) stands out as one that may benefit over the long-term from an uptick in patent wins and immigration trends in emerging markets.
A study by the Brookings Institute “show(s) that pro-business migration reforms significantly increase the number of patents filed by the MNC within a country, while the opposite is true for policies deterring business-related migration. Negative reforms also decrease the quality of the patents filed across several criteria.”
Said another way, it’s quite possible that as a developing economy welcomes people from other countries, it can become more innovative. That’s a relevant point in EMQQ’s favor because it’s focused on innovation, and 20 countries are represented in the fund.
“On the contrary, positive migration reforms substantially increase the share of global patents filed in countries with low initial shares of knowledge production. This finding suggests that policies affecting human mobility have contributed to the observed shift in the geography of innovation towards emerging markets,” adds Brookings.
While some EMQQ components were pinched by collapsed supply chains during the coronavirus pandemic, and many of the fund’s China-based components were punished last year due to that country’s government pursuing tighter regulations, the global health crisis was also factor in slower migration. That is an overlooked scenario and could be beneficial to EMQQ on the other side as it improves.
“Thus, whether the slowdown in international mobility was caused by the COVID-19 global pandemic, or by countries enacting reforms that deter immigration, it is the world that will pay the cost in terms of much less innovation—one of the most important drivers of economic growth and prosperity—in the years to come. To reverse the trend, more immigration, not less, is the answer,” concludes Brookings.
China is EMQQ’s largest geographic exposure at 51.6%, while South Korea and India combine for almost 18%.
For more news, information, and strategy, visit our Emerging Markets Channel.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.