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Investment indicators: looking under the hood

When looking for suitable opportunities, smart investors of course study the minutiae. And this means paying close attention to specific industries, companies and even individual innovations rather than just glancing at the – often misleading – big-picture statistics of national economies. This is not to say that headline figures are wholly irrelevant, but as I’ve already discussed at some length here macroeconomic indicators like GDP have their limits when it comes to serving as accurate measures for growth. In this post I outline a few examples where regional innovation hotspots are as likely to reveal attractive investment conditions as published GDP figures. 

Russia’s overall economic picture might appear unpromising at the moment, yet analysts still manage to ignore the enduring positive aspects, such as the country’s minimal debt-to-GDP ratio. Regardless of what the headlines say, anyone not blinkered by mainstream statistics will be conscious of the innovative industries and technologies where Russia remains a leader. The country is especially strong in sectors from which many of the world’s most successful companies have sprung in recent years, including technology, military and aerospace.

The merits of looking at innovation centres rather than overall GDP are easily exemplified with three key examples: two where Russia is in a strong position and one where, I suggest, smart PE investors might even look further afield. What these technologies have in common is their ability to be deployed across the globe, taking root where the best minds can be applied to them regardless of international statistics:

  • Atomic energy: if implemented correctly, atomic energy ultimately works out as one of the cheapestforms of alternative energy (after hydro), but further breakthroughs are needed to ensure its stable and safe expansion. And where else is the next key innovation likely to come from? Most probably from Russia, one of few countries currently promoting the construction of new reactors. Globally, Russia ranks just behind China for the number of atomic reactors being built.
  • Space: for a number of years now, the US has lacked a means of taking its own astronauts into space and the latest American ISS crewmember was transported on a Russian craft. Judging by the sheer numbersof successful launches – such as the new cosmodrome under construction near Blagoveshchensk – Russia is maintaining its hold as a global centre of space activity. This is further underscored by the recent setbacks experienced by Orbital Science and Virgin Galactic.
  • Bioscience: Innovations following the decoding of the human genome may surpass the invention of penicillin, vaccines and anaesthesia combined. But with stem cell research expanding globally, it remains to be seen where the first successful human-based clone will occur. Looking beyond Russia’s borders, the countries leading the packon cloning (eg. Brazil, China, Pakistan, Moldova, Cuba) are united not by strong GDP figures, but a dynamic climate not restricted by excessive red tape.

As I wrote a few months back, Moscow’s poor performance on the World Bank’s ‘Ease of Doing Business’ index risked eclipsing the ‘real story’ of investment potential in other Russian cities. Similarly, when we look more closely at sectors where the next innovative breakthrough is likely to be achieved, perhaps true PE opportunities are again being masked by conventional measures?

Do you know cases elsewhere in the world where the headline figures belie real potential? As ever, I invite you to share your insights!

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