The idea of convergence in economics gained currency in the 1990s on the back of the theory poorer countries’ per-capita incomes tend to grow at a faster rate than those of richer economies.  Hurdles include how much macro-economic policies encourage greater balance and equity in the distribution of the fruits of growth. Convergence has driven the sorts of companies we believe will succeed as a result of themes such as a growing middle class and the success of well-established industries that will help power the economies of Latin America, India and increasingly China.

For almost two centuries, the history of the global economy broadly reflected divergence in average incomes. The idea of convergence in economics gained currency in the 1990s on the back of the theory poorer countries’ per-capita incomes tend to grow at a faster rate than those of richer economies. There is though a growing body of opinion that this distinction between developing and developed countries is too simplistic.

According to Myron Brilliant of the US Chamber of Commerce, for example, some countries – particularly China – may behave very differently from others with which they are often grouped. Tags such as ‘BRIC’ may therefore become misleading if it means people assume some homogeneity of behaviour and development outlook.

Over the past few decades, one billion people have been lifted out of poverty and, with a similar number expected to make this social and economic migration between now and 2030, Brilliant believes we can be optimistic about the future. However, he also asks: “Will these [emerging] countries work with us in tangible ways in supporting innovation, promoting environmental collaboration and fostering stronger healthcare?”

Among a number of possible obstacles, Brilliant suggests the global financial crisis may have changed some nations’ attitudes to development. There are views now, for example, that “a hybrid state-backed mercantilism” may be a sturdier economic model for development and Brilliant adds: “This argument will play itself out in the [next 20 years] much as those capitalist-socialist models contended in the second half of the 20th Century.”

In his 2012 paper World Economy: Convergence, Interdependence and Divergence, economist Kermal Dervis believes a key question is whether global convergence is likely to continue, so leading to a fundamental restructuring of the world economy over the coming decades. “The world of the future will be ever more multi-polar and interdependent, with global markets offering the potential for rapid economic progress,” he suggests.

Dervis goes on to highlight two hurdles on the way to convergence, however, concluding: “Whether this potential can be realised may depend largely on how well international cooperation improves both the effectiveness of national macroeconomic policies, by taking into account their spill-over effects, and how much it encourages greater balance and equity in the distribution of the fruits of growth.”

According to Merrill Lynch in its 2013 paper, A Transforming World, demographics – most notably the emerging middle class – and shifting alignments of global power are among the “dynamic forces” that are changing our lives and creating a wave of opportunities – though also problems. This transforming world means everyone must look at their investments and portfolios differently from the past.

As well as economies, academics have now started to explore the idea of convergence between international stockmarkets. The International Journal of Financial Research’s 2012 paper, What is the degree of convergence in developed equity markets?’, for example, found all the markets it analysed are moving towards greater integration in terms of increasing correlation as well as being more interdependent and affected by globalisation.

In the same year, academics from the universities of Piraeus and Nevada identified convergence of stock-price volatility at a country level, concluding “Assuming that country-level effects drive financial aggregates – for example, stock returns – our empirical results suggest the equity markets of 33 of the 42 counties in our sample do form a unified convergence club.”

As a predominantly bottom-up investment manager, Aberdeen’s ‘fundamental’ investment style involves examining portfolios from the stock level upwards. Convergence has, however, driven the sorts of companies we believe will succeed as a result of themes such as a growing middle class and the success of well-established industries that will help power the economies of Latin America, India and increasingly China.

In a 2013 piece for the Financial Times entitled ’The Global Economy is now distinctly Victorian’, Adam Posen of the Peterson Institute for International Economics argues the world now has high real economic volatility despite relative price stability. “This state of affairs is in fact a return to the Old Normal of the late 19^th Century,” he observes. “It is a world we can understand, even if we do not like it.”

Acknowledging the division between investments yielding safer, low returns and speculative, higher-return assets, Posen views large state-backed infrastructure projects as comparable to 19^th Century development, adding: “The Old Normal is thus a tale of the global economy returning to unfettered markets in many ways.” As unpalatable as some of the process might be, Posen expects it to last.