The world is not just changing, it is being reinvented. Shanghai perhaps, is the epitome of the transformation that we are witnessing. The Bund and its stunning art deco architecture are still there, but across the river, the old fishing village of Pudong has been turned into a forest of magnificent skyscrapers. It is China’s hypermodern interpretation of a 21st century Manhattan. But, while there may be a new Manhattan, just as there was once a New Orleans and a New York, this analogy fails to do justice to the full extent of today’s reality. The seismic shift that has occurred is even more dramatic than the move from the Old World to the New World at the start of the 20th century.
Emerging market investors have, rightly, often been wary of the first-generation of emerging market companies – the former state-owned entities sold off or floated on newly created markets in what used to be called the “Third World”. The newly privatised companies were relics of a bygone era, impossible to reform and doomed to extinction as they dragged down the indices and hit the performances of emerging market funds. Instead, the focus of active managers has been on second-generation companies – the recently created businesses set up by local entrepreneurs replicating business models that worked in Western Europe and the US and introducing them successfully to the recently liberalised market economies.
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