At the Dubai Global Financial Forum, Arif Naqvi, who heads the region’s largest private equity firm, Abraaj, said that the term “emerging markets” (EM) should be replaced by “global growth market.” But he emphasized that:

“The only sense in which they [emerging markets] are still emerging is in terms of governance and transparency,” he declared.

He explained that corruption, lack of transparency and a general refusal to “play the game” by EM corporates had affected the view of western and other investors, and resulted in lower valuations, higher risk assessments and a reluctance to commit capital on the part of big western investors used to their own, generally much higher, standards of governance.

Some experts now argue that governance, or rather the lack of it, is a far more important investment criterion than geography or industrial sector. A well-run, transparent company will always carry an investment premium for big western investors, regardless of where it happens to be in the world, or what business it is in.

Executives of EM companies regularly pay lip-service to the need for better governance, and in some cases actually implement policies — codes for financial reporting, remuneration and recruitment — that might facilitate it.
Corporate governance, or lack of it, may be a better guide in determining what constitutes an emerging market rather than geographical location in the modern investment world.

But the problem stubbornly remains, and the most significant factor that remains behind virtually all cases of the EM discount is simple: Government control and interference.

Emerging media necessary to help ensure global standards of corporate governance