The Investment Implications of State Capitalism
Companies in many developing countries operate under a system of state capitalism, an economic paradigm in which free market outcomes are managed by the state in order to promote national interests. In state capitalist economies, companies are likely to focus on promoting national interests rather than maximizing profit. When investing in state capitalist economies, managers should underweight large-cap, state-sponsored companies and place larger emphasis on smaller companies that are under less pressure from the state. This is contrary to current investment trends.