Designed for long-term investors
This is a holistic risk tool used to identify top-down and structural challenges.
Experience teaches us that fundamental, research-driven stock picking does not happen in isolation. Countries have weaknesses and vulnerabilities that can influence investment outcomes, so our analysts strive to be clear-eyed and knowledgeable on policy direction, structural vulnerabilities and specific challenges faced by the countries where we invest.
Our Proprietary Database
Our proprietary database covers 110 variables for 70 countries. This provides the backbone of our Country Risk Framework, providing the data which drives our investment outlook ratings. The coverage of 70 countries is determined by our investment universe. These countries are the constituents of the most widely used indices, namely MSCI World, MSCI EM and MSCI Frontier. The data covers easily Quantifiable subjects, such as Macroeconomics and what could be more usefully described as Contextual, such as demographics and geopolitics.
Processing the inputs
The investment outlook is built on quantifiable data but viewed through the lens of contextual inputs. The data that we consider Quantifiable builds a picture of the practical constraints, vulnerabilities and institutional readiness of a country. This is where reforms tend to have the largest impact and where the immediate concerns tend to reside.
Under Contextual, we consider all those inputs that form the prism through which the quantifiable data should be viewed, to accurately assess the investment outlook for a country.
Sovereign financials
- Macro vulnerabilities
- Growth, inflation, rates, spreads
- FX, Ratings outlooks
Government institutions
- Institutional stability
- Regulatory quality
- Rule of law
- Ease of doing business
- Public sector corruption
- Banking supervision
ESG and climate change exposures
- Country ESG score
- Air & water quality
- CO2 emissions
Demographics
- Population growth, median age
- Urbanisation growth
- Educational attainment
- Gender imbalance
- Female worker participation
- Human Capital index
- Intergenerational mobility
Geopolitics
- Geo-economical security
- Military capability
- Diplomatic power
- Economic diversity
- Resource security
- Diversity of trade links
Serves as a framework for long-term, bottom up investors.
Investment outlook
The Country Risk Framework is designed to build five-year investment outlook ratings for investors, to guide for policy expectations, help identify vulnerabilities and identify the range of possible outcomes for fundamental, research-driven stock pickers.
Considering all the data points for each section, an overall assessment is made.
Scoring system
For simplicity a score of 1 3 is used indicate positioning on each segment
| Scoring | Points |
|---|---|
| Black | 1 |
| Grey | 2 |
| Green | 3 |
Output
Structural assessment by country summarised in points
| | | Risk Score | | | 5 year outlook | |
|---|---|---|---|---|---|---|---|
| China | 6 | Positive | |||||
| Taiwan | 8 | Neutral | |||||
| Korea | 7 | Neutral | |||||
| India | 6 | Neutral | |||||
| Brazil | 6 | Positive | |||||
| South Africa | 5 | Neutral | |||||
| Russia | 8 | Negative | |||||
| Saudi Arabia | 7 | Negative | |||||
| Mexico | 6 | Negative | |||||
| Thailand | 6 | Neutral |
Investment outlook is focused on 5 years; commentary highlights key signposts
Past performance is not a guide to future returns.
Source: Martin Currie as at 23 March 2020.
Country snapshot
| China | Evaluation | Risk score | |||
|---|---|---|---|---|---|
| Sovereign Financials | Sound sovereign financials | | ||
| Government institutions | Strong institutions, hampered by trade war | | ||
| ESG & Climate change exposure | Exposed to climate change | | ||
| Demographics | Neutral demographics | | ||
| Geopolitics | Strong domestic politics | | ||
| Commentary | Positive Trajectory | ||||
| China will continue to use its economic and political resources to take advantage of the deglobalisation campaign of the US. A shift toward high-tech industries, supported by subsidies, will drive economic growth, although ammo will be used sparingly. The "Phase I" trade deal only pauses escalation. There will not be a grand "Phase II". Beijing will continue to focus on stabilising its economy and diversifying its export markets, while continuing to open up and deregulate the service sector. There are many policy tools available and the investment outlook is sound. COVID-19 remains a significant challenge to the economy and to social cohesion, within the Investment Outlook time period. Sovereign financials will suffer immediately, as GDP growth slows and need for state compensation increases over time. The country leads the world in its response and is close to regaining control, so stands to begin its economic recovery, although hampered by the condition of its trading partners. However, the healthcare service will gain control over the pandemic. | POSITIVE | 6 | |||
Past performance is not a guide to future returns.
Source: Martin Currie as at 23 March 2020.
| Taiwan | Evaluation | Risk score | |||
|---|---|---|---|---|---|
| Sovereign Financials | Robust sovereign financials | | ||
| Government institutions | Strong institutions | | ||
| ESG & Climate change exposure | Climate change exposed | | ||
| Demographics | Neutral demographics | | ||
| Geopolitics | Uncomfortable geopolitics but strong healthcare security | | ||
| Commentary | Neutral Trajectory | ||||
| Recognising the challenges to global growth, Taipei will work to foment domestic reinvestment by Taiwanese corporations. Relations with China will remain tense, both on the economy and security fronts. However, the healthcare service will gain control over the pandemic. | NEUTRAL | 8 | |||
Past performance is not a guide to future returns.
Source: Martin Currie as at 23 March 2020.
| Korea | Evaluation | Risk score | |||
|---|---|---|---|---|---|
| Sovereign Financials | Sovereign financials sustainable | | ||
| Government institutions | Strong institutions | | ||
| ESG & Climate change exposure | Neutral ESG positioning | | ||
| Demographics | Neutral demographics | | ||
| Geopolitics | Covid-19 response very effective | | ||
| Commentary | Neutral Trajectory | ||||
| Pressure from tense relations with Japan and China, coupled with a loss of momentum in reforms put Seoul on the defensive. However response to COVID 19 has changed all that. It remains a significant challenge to the economy and to social cohesion, within the Investment Outlook time period. The country leads the world in its response and is close to regaining control, so stands to begin its economic recovery, although hampered by the condition of its trading partners. However, the healthcare service will gain control over the pandemic and business will recover in good order. | NEUTRAL | 7 | |||
Past performance is not a guide to future returns.
Source: Martin Currie as at 23 March 2020.
| India | Evaluation | Risk score | |||
|---|---|---|---|---|---|
| Sovereign Financials | Challenged sovereign financials | | ||
| Government institutions | Tax reforms positive | | ||
| ESG & Climate change exposure | Climate change threat rising | | ||
| Demographics | Challenging demographics | | ||
| Geopolitics | Exposed to Covid-19 | | ||
| Commentary | Neutral Trajectory | ||||
| The main concern is that the Modi government's focus appears to have strayed from economic policy, balking at joining RCEP and failing to address the weakness in economic growth. Demographics and geopolitics dictate an urgent need to refocus. COVID 19 represents a significant challenge to the economy and to social cohesion. Delhi is untested by simultaneous economic shocks and healthcare security threats. Their response is behind schedule and as a result will suffer a more prolonged downturn than many others. As a result, the healthcare service will struggle to gain control over the pandemic, even at great economic and human cost, which could trigger significant social unrest. | NEUTRAL | 6 | |||
Past performance is not a guide to future returns.
Source: Martin Currie as at 23 March 2020.
| Brazil | Evaluation | Risk score | |||
|---|---|---|---|---|---|
| Sovereign Financials | Improving sovereign financials | | ||
| Government institutions | Institutional reforms ongoing | | ||
| ESG & Climate change exposure | ESG ranking weakening | | ||
| Demographics | Neutral demographics | | ||
| Geopolitics | Policy making strong | | ||
| Commentary | Positive Trajectory | ||||
| Expectations are higher after pension reform and the likelihood is some tangible progress will be made on taxation policy. Meanwhile, inflation and rates are at historic lows, boosting domestic investment in equity. COVID 19 represents a significant challenge to the economy and to social cohesion. They are behind schedule and as a result the country will suffer a more prolonged downturn than others. However, the healthcare service will eventually gain control over the pandemic. | POSITIVE | 6 | |||
Past performance is not a guide to future returns.
Source: Martin Currie as at 23 March 2020.
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