Executive Summary

A Governance Update — We update the analysis in our 2014 and 2015 reports with data for 2016.

A Modest Improvement in Governance — The percentile ranking of three-quarters of the countries in a governance composite increased, albeit modestly, in 2016 versus 2015.

Improved Governance in Some EMs — Key Emerging Markets saw an improvement in various governance metrics, including national governance (corruption in China, India and Russia) and corporate governance (China, India).

Valuation Implications —The quality of country-level governance affects corporate governance and, thus, firm value. However, just modest improvements in governance seem unlikely to impact country valuations.

Strategy Implications — We continue to rank China and India as Unattractive in our regional strategy model, in large part reflecting unappealing valuations and relatively weak earnings momentum.

Figure 1: The Cornerstone Capital Governance Composite: Ranking 2016 vs. 2015 GGG fig 1

Source: Cornerstone Capital Group

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Michael Geraghty is the Global Markets Strategist for Cornerstone Capital Group. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi.