The 16 Countries You Should Invest In

Use this analysis to help spark and shape discussions on geographic expansion
Although acronyms highlighting the next big economic celebrity already abound (try BRIC, BASIC, and Next 11 for starters), the rankings behind them are generally not produced for executives that need to make investment decisions. Too often these media-friendly groupings focus on growth potential at the expense of risk. So, in response to client requests, we've introduced the Sweet 16. To do so, we first designed a Growth-Size-Risk (GSR) framework to find which countries are most likely to give executives the best return on their investment. Using sovereign debt credit default swap as a proxy for risk, real GDP, and median economist forecasted 2010 GDP growth rate as a proxy for recovery growth*, we created a country GSR heat map for the largest 64 economies in the world. Those marked in green make up the list of 16. Paring Down to the Sweet 16 Using the framework, we drew out the top 16 countries that we expect to enjoy higher growth and below median risk characteristics. This is in stark contrast to most of the much publicized 'Next 11' countries, as well as Brazil, India and Russia (from the BRIC grouping) who find themselves in the high risk/high growth category. Key Characteristics of the 16 Countries
  • Asia Pacific Dominates: While the Sweet 16 (S16) consists of countries across the world, Asia Pacific region dominated, making up half of the list.
  • Don’t Count the U.S. Out: Despite all the problems ranging from slowdown in consumption to ballooning government deficits, the U.S. is one of the only two G7 countries that make the S16 list. The size of U.S. GDP is more than the sum of the next four largest economies in the world and the magnitude of its projected 3% growth, totaling $428 billion, doubles the total amount of 2010 growth of the rest of G7 nations.
  • China Tops the S16 List: As expected, China is on top of the list with an impressive expected growth rate of 9.5%.  At the same time, it is the only country in the BRIC universe that makes the S16 list.  Brazil, India and Russia, while all enjoy a higher growth rate, appear to be much more risky.
  • Don’t Overlook Sizeable Growth Opportunities: Companies should also take a closer look at Canada, Korea, Australia, Taiwan, Saudi Arabia and Thailand to take advantage of sizeable growth opportunities. These countries in the S16 list share the characteristics of higher than median GDP size.
  • Smaller Economies that Made the List Matter: Singapore, Hong Kong, Malaysia, Israel, Kuwait, Morocco, Qatar and Chile round up the S16 list. Despite their smaller size, they exhibit high growth and low risk characteristics.
Use the Analysis Wisely Though A one-size-fits-all analysis like this will obviously not be perfect for all firms. Managers should always weigh up their operational capabilities and the demand for their services/products when considering geographic expansion. However, the heat map provides an unbiased view of country attractiveness, is a good way to help shape conversations about geographic expansion, and reminds managers to first look at the bigger picture before diving into a decision. If you want to print the heat map, use this pdf version. Feel free to leave comments below, and CEB clients should contact us if they want more information. * - If CDS was not available for a particular country, we derived the implied CDS using its credit rating.  If the median economist forecast was not available for a particular country, we used the IMF forecasted growth rate. Editor’s Note: Protecting profitability and crafting long-term strategy in emerging markets is just one of the issues we’ll be discussing at this year’s 2011 Finance and Strategy Summits. Learn more on keynote speakers Lou Gerstner (Washington, DC) and Vicente Fox (London, UK)

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6 Responses to “The 16 Countries You Should Invest In”

Mari Santana Said:

I do not agree that Brazil is a high risk. I would like to have more information in which information this statement is based on.

Comment made on March 29th, 2010 at 9:27 am
Tim Stafford Said:

Hi Mari,

The reason that Brazil is on a higher risk scale is solely due to the fact that Credit Default Swap Spread on its sovereign debt is higher than the median for the 64 largest GDPs we looked at. The credit default swap spread is a market indicator that dictates the premium a buyer needs to pay for protection against sovereign debt default. At the same time, it should be noted that Brazil is very close to the risk median of the population and its 2010 real growth of close to 5% is truly on the high side compared to the population.

We certainly agree that Brazil has tremendous potential (as can be seen from its large GDP and higher projected 2010 real GDP growth). To help managers understand the macroeconomic condition of Brazil, we have created a monthly economic dashboard at the following link: http://cebviews.com/category/economic-indicators-brazil/

Thanks,

Tim

Comment made on April 9th, 2010 at 6:39 am
Aanand Rai Said:

Hi,

Why is India considered a risk?

Aanand

Comment made on December 29th, 2010 at 9:50 pm
Sukhamoy Said:

Dear Sir/Madam,

I feel this analysis takes a more static/short term view than a long term view.

In my opinion such analysis should be done for a sufficiaenly long term with consideration of more variables.

Best Regards.

Comment made on December 30th, 2010 at 12:05 pm
Adelle Said:

How does this capture the “do ability” of new entrants being able to do business effectively / efficiently.

Comment made on January 6th, 2011 at 11:41 am
Jian Chen Said:

Thank you for all the comments.

Aanand: Credit Default Swap spread information is not available for India. So we derived a synthetic CDS based on India’s credit rating (rated as BBB-). Personally, I think India’s risk could very well be lower: the country has demonstrated rapid growth since S&P last assigned this rating. However, while the country is a more balanced growth story (as compared to most export reliant emerging markets), there are risks facing the country, e.g., inflation, corruptions. Please see our monthly India macroeconomic report for more detailed analysis on India.

Sukhamoy: I agree that this analysis is a snapshot of the world around Q1 2010. However, I would argue that this is a little more than short term focused. While we did look at the short term opportunities (since at the time, many members were interested in the short term recovery opportunities following the 2009 recession), we were really focusing on medium term risks by comparing CDS spreads of 5-year bonds. These proxies, we believe, are arguably unbiased as they are based on market perceptions. Moreover, as mentioned in the blog, this simple analysis attempts to provide an easy-to-understand framework that helps companies to generate internal discussions, hopefully on how they can leverage their resources/core competencies to mitigate different risks in these countries. I believe that these discussions, rather than any static analysis, are the most valuable and we are more than happy to help facilitate these conversations onsite.

Lastly, we are in the process of launching an interactive global opportunity database where members can choose different macroeconomic/market metrics for deeper dive analyses.

Adelle: I should have stated in the blog that this particular analysis really does not take into consideration of competitive landscape as it focuses only on a country’s intrinsic opportunity/risk. However, the framework can be easily adapted to show opportunity/competitive landscape by changing X-axis to a proxy for business competitive index. We will create this particular analysis as we launch the interactive global opportunity database late Q1/early Q2 2011.

Again, thanks for all your comments.

Jian

Comment made on February 8th, 2011 at 7:28 pm
 

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