Human capital is a hitherto ignored opportunity for investors, but it has the potential to be a rewarding one, according to Pictet Asset Management.
In a new report, the firm’s analysts point to human capital as a “signicant engine of economic growth”. The report highlights Singapore, Taiwan and South Korea, none of which are particularly abundant in natural resources, “but which over the past half century have all vaulted into the top echelon of global economies from humble starts”.
Much of that progress, the report says, “is thanks to the vast increases in human capital in each of these countries. By contrast, there are countries with considerable natural wealth that nevertheless have poor and moribund economies because they score badly on human capital measures.”
Robert Simpson, head of Emerging Markets Investment Strategy & Solutions and Sabrina Jacobs, senior client portfolio manager at Pictet Asset Management, comment:
“A significant driver of an economy’s long-term performance, and investment performance, is human capital – be that life expectancy, education, equality or softer indicators about quality of life.
“Investors can identify opportunities and generate excess returns by assessing the prospects for human capital growth in a country, which is particularly the case for investors in emerging market bonds.
“Emerging economies have the potential to develop sustainably by unlocking human productivity through improving social foundations. Improving water quality and sanitation can have beneficial effects on health, while improving education and skills, and encouraging more women into the workforce, are key drivers of productivity gains in an economy.
“At Pictet Asset Management, gaps are regularly assessed using a set of indicators with defined thresholds where human capital gains can be measured and where enabling corporate sectors can be identified, which then becomes the basis of an investible universe of both countries and companies.”
The full report can be found on the Pictet Asset Management website.
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