One of the reasons why London is so adored by tourists is that much of it remains conspicuously old. Take a stroll almost anywhere in the capital and you will encounter evidence of numerous bygone ages.
The most obvious vestiges are large in scale. For example, although they stand less than half a mile apart, the Tower of London and the Shard are separated by around a thousand years’ worth of developments in construction techniques.
But what about the less eye-catching, more quotidian traces of previous eras? These are perhaps easier to overlook, yet they become all too visible if you study the cityscape closely enough.
You may, for instance, spot a cluster of rooftop satellite dishes or TV aerials. You will almost certainly see a cash machine. You might even espy a telegraph wire, the shell of an Underground ticket office or – holy of holies – a red telephone box.
These and countless other artefacts make up a patchwork of incremental innovation. Each was once at the cutting edge but has since been overtaken and rendered passé – if not redundant – by subsequent advances.
Together, they amount to a sprawling jigsaw of ‘legacy’ infrastructure. As such, they also represent a sizeable obstacle on the path to positive change.
All this might be of little interest to casual visitors keen to add to their smartphones’ photo albums. Yet it holds a useful lesson for investors, because it helps us understand how ‘leapfrogging’ allows emerging markets to embrace technological disruption.
The historical explanation of why many emerging markets are now reaping the rewards of this phenomenon is straightforward, if not especially palatable. It is simply that they missed out on some of the most important breakthroughs of the 20th century.
Such exclusion once held back these economies. Today, by contrast, it has rendered them uniquely receptive to the sweeping upheaval that has come to define long-term mega-trends.
In the Asia Pacific region, where we invest, the leading poster child for leapfrogging is arguably India. Its digital transformation has been particularly spectacular, feeding into arenas such as e-commerce, electric vehicles and renewable energy.
The country’s technology infrastructure is underpinned by Aadhaar, a biometric ID scheme, and Pradhan Mantri Jan Dhan Yojana, a national financial inclusion programme. Both have boosted take-up of the Unified Payments Interface (UPI), a real-time payment system that facilitates inter-bank transactions through mobile phones.
The chief executive of one Indian start-up memorably described the transition to neo-banking as a critical component of “the leapfrog of the century”.
“In the West, companies are still figuring out real-time payments,” he wrote. “UPI achieved this almost a decade ago.”
The figures are certainly impressive. In a single month earlier this year, through around 550 participating banks, UPI processed payments worth almost £200bn. The National Payments Council of India has estimated the system will encompass 750 million users and 100 million merchants by 2027.
From an investment perspective, though, much of this sweeping disruption’s appeal lies away from the headlines. With mass adoption of UPI fuelling a cascade of innovation, India’s small and medium-sized companies are playing an increasingly influential role in the leapfrogging story.
Take Affle India. Utilising the country’s newfound hyperconnectivity, it offers a consumer intelligence platform that helps marketers engage with target audiences and drive transactions. It completed its initial public offering five years ago and is now valued at around £1.9bn.
Hyderabad-based KFintech is another company that is successfully tapping into India’s tech-enabled financial revolution. It provides a range of digital services and big-data solutions for asset managers. It currently has a market cap of approximately £1.5bn.
Businesses like these are well positioned to benefit as India’s digital journey continues to move forward in leaps and bounds. Yet investors should be aware there is a challenge here.
Smaller companies in emerging markets tend to receive scant coverage from investment analysts. As a result, their attractions routinely go unremarked.
This is why the insight of specialist investment teams can be vital when seeking opportunities at the lower end of the market capitalisation spectrum. A firm grasp of a region’s people, places and businesses can make a significant difference in identifying the bottom-up engines of progress.
I mentioned at the outset that signs of incremental innovation in a city such as London become clear only to those who fully absorb their surroundings. Similarly, many of the sources of radical innovation in an economy like India are apparent only to those who know where to look.
Gabriel Sacks is co-manager of abrdn Asia Focus. The views expressed above should not be taken as investment advice.