Needed: An Economic Performance Index for Cities

Oil prices remain near record highs, gold has gone through the roof, technology sector equity valuations are frothing over and emerging markets are decoupling from the moribund West. As investors seek new or alternative asset classes as either safe harbors or high-return prospects, there is an essential new portfolio that needs to be developed: cities.

The emerging markets category in particular is fraying. Witness how, according to MSCI, mature markets like South Korea retain emerging market status, while clearly stable and booming economies like the UAE are still labeled “frontier” alongside Kenya. Such labels are too broad, encompassing a wide range of countries with divergent trajectories. At the same time, they lack nuance, failing to take into account that a city’s fate can often be decoupled from that of its home country. The aftermath of the financial crisis has starkly revealed how this is indeed the case. Unemployment remained lower in cities, which also recovered faster. European cities have rebounded demonstrably faster from the financial crisis than EU nations as a whole. Greece, Italy, and Portugal might be finished from an investor’s standpoint, but Athens, Rome, Milan and Lisbon certainly are not.