Country Based Equity Asset Allocation



Financial, sector & valuation analysis by market

An Investment Taxonomy That Makes Sense

-John Authers, Financial Times


Ecstrat's classification of governance regimes globally  comprises of nine distinct categories of Governance Regime, defined as the relationship between minority investors, controlling shareholders, labour and the state, taking into account broader commercial, social and political factors.

We place each of the major global equity markets into the one of these categories which we believe best represents the prevailing Governance Regime, although there will be some elements of other systems present in almost every country. We then identify the potential catalysts for change to gauge the direction in which each market is most likely to evolve.



Secular shifts in governance regimes by country are one of the main drivers of long term economic and financial market performance. Governance regimes also undergo their own cycles of hubris, which can help to time market cycles. The analysis of governance regimes forms the basis for a country-based asset allocation process, which cuts across the existing division between frontier, emerging and developed markets.


Each secular market cycle is marked by the concentration of moral hazard and hubris in a particular Governance Regime, leading to economic and financial crises. The two previous secular market cycles in the post-1991 settlement, culminated in the 1997-2002 emerging market crises of Hierarchical Governance Regimes or family-based capitalism and the 2007- 09 Great Financial Crisis (GFC) of Liberal Governance Regimes.


Between 1991 and 2008, it appeared that the corporate control structures and broader Governance Regimes would gradually converge towards supposed Anglo-Saxon liberal norms, but since the GFC this is no longer the case. Instead the legal, historical, social and political context of individual countries, increasingly shape the environment for investors in the listed corporate sector.


We believe that this is a much more useful representation of the fundamental characteristics of each market than the current split into Frontier, Emerging and Developed categories, from the perspective of a global equity investor.