We look in more detail at the quarter one results for our country risk map, and look at examples of how this is affecting business today.
Global megatrends such as demographic and social change and the shift in global economic power are reshaping the economic and commercial landscape.
The balance of the Global Economy is pivoting from advanced economies in the West, to Emerging economies in the East…
…but that is just the beginning of the story. In the past, the distinction between groups of advanced and emerging markets has been the focus of attention. Today the distinctions within these groups are just as important, requiring a more sophisticated view of the global economy.
This is particularly relevant when it comes to measuring country risk. Our latest Country risk results show that within the seven largest emerging markets, the most risky economy carries a risk premium three times as large as the safest. Within the group of advanced economies southern European states have seen their risk fall the most over the last 12 months.
Even as economic risks diverge, political risks continue to dominate the headlines, and we see these flashpoints every day in the news.
This means unpicking the risks that countries are exposed to is more important than ever. Our CEO survey suggests that only 14% of business leaders saw no need to change their current approach to managing risk:
Our country risk tool helps businesses and investors to more accurately assess the risk of international assets by measuring the Country Risk Premium for all sovereign states. Our clients use our estimates to determine the appropriate discount rate to apply to business valuations and investment appraisals.
Getting the CRP wrong can be costly, we worked with a recent client investing in an international [airport/asset] where just a 2% difference in the CRP could have resulted in a $100m swing in the asset’s valuation.
So if you’d like to know more about how you could use our service, please contact a member of the our team.
Naz Naini gives an overview of what country risk is, why it's relevant for your business and our services in this area.
So what is country risk? It is a measure of risk faced by businesses when investing in sovereign states and it reflects a number of factors including:
It is effectively the risk of those low probability, high impact events that can lead to significant losses in the value of investments. Now more than ever these types of risk are at the forefront of many investors thinking due to a number of major economic and geo-political events, such as the Eurozone sovereign debt crisis and also events in the Middle East and North Africa, all of which have led to previously stable countries becoming much riskier.
Country risk is changing all the time and in some cases we have seen a complete reversal of historical trends, for example, in 2008 Brazil's risk rating was higher than Portugal. In recent years we have seen a complete reversal of this trend. For certain countries we have also seen a major disconnect between the country risk based on actual bond yields and those implied by the risk ratings. So for all of these reasons measuring and accounting for country risk whether it be for international investment appraisals or valuation of multi-national companies is more essential and more challenging than ever before.
Our economics team has been analysing and measuring country risk for 15 years and covers over a 180 sovereign states. For more information about country risk and our services please take a look at our website.
Our interactive map, above, shows just how much country risk has evolved over the past decade. Some countries have become much riskier to operate in, whilst others have seen their risk levels fall. An analysis of country risk trends can help organisations identify these risks and opportunities early on in their planning processes.
For UK companies that have international operations or are considering opportunities abroad, managing and accounting for country risk will be a key consideration. Our country risk service can help companies to quantify and manage such risks in order to make better business decisions.
Our country risk service can help companies to quantify and manage such risks in order to make better business decisions.
We calculate Country Risk Premiums (CRPs) for 187 sovereign nations using an economic model that we have developed since 1998. Our model uses a range of inputs in generating CRPs, including reliable sources of credit and risk ratings and sovereign bond information.
For more information, please contact a member of the team.