There are many differing opinions on if you should include foreign assets in your investment portfolio. Some say those in the USA should only have USA-based stocks and bonds. Others say you should have different percentages of foreign stocks and bonds. This post seeks to determine if there are other countries or regions that one should consider investment attention to.
I downloaded the following data from the CIA World Factbook for the word’s countries:
- Gross Domestic Product (GDP) at Purchasing Power Parity
- GDP per Capita
- Public debt as a % of GDP, which is all the debt the government owes
- External debt ($), which is the debt the country owes to a foreign country
- Exports and imports
- Latest available GDP growth rate (%)
- Industrial production growth rate (%)
- Government Reserves ($), which is of how much foreign exchange or gold the county has available to pay its debts
A total of 189 of the world’s countries were assessed.
For the analysis, the following transformations of the CIA World Factbook data were made:
- Public debt as a % of GDP was multiplied by the per capita GDP to approximate the public debt per capita
- External debt was divided by the population to approximate the External Debt per capita
- The trade surplus or deficit was determined by subtracting the imports from the exports. Then this value was divided by the population to determine the approximate trade surplus (positive) or deficit (negative) per capita
- The government reserves were divided by the population to approximate the government reserve amount per capita
Each one of the countries was given one point (scored) for each country that is surpassed. For example, the country with the largest GDP (China) was given a score of 189. The country with the smallest GDP (Anguilla) was given a score of 1. The countries with the least amount of public debt per capita (Macau and Timor-Leste) were given a score of 188.5 while the country with the largest public debt per capita (Singapore) was given a score of 1. Ties were given the average score.
Once scoring was complete, the score for each category was multiplied by a weighting factor and summed to determine the overall weighted score. Then each country was ranked by score. The country with the greatest score was given a rank of 1. The weighting system is subjective by nature but was intended to give more importance to categories which would cause a country’s economy to excel or falter in the future.
|Category Name||Highest Score||Weight|
|Public Debt ($/Capita)||Least||0.15|
|External Debt ($/Capita)||Least||0.10|
|Trade surplus or deficit ($/Capita)||Greatest||0.05|
|GDP Growth Rate (%)||Greatest||0.15|
|Industrial Production Growth Rate (%)||Greatest||0.15|
|Government Reserves ($/capita)||Greatest||0.05|
Based on the weighting system, the countries are ranked as follows (lower ranking is better):
|7||India||63||Rwanda||119||Central African Republic|
|9||Hong Kong||64||Nicaragua||121||El Salvador|
|24||Estonia||80||Sweden||136||Saint Kitts and Nevis|
|26||Kazakhstan||82||Cyprus||137||Sao Tome and Principe|
|28||Cote d’Ivoire||84||New Zealand||140||Greece|
|34||Korea, South||90||Togo||146||Bahamas, The|
|35||Egypt||91||Eritrea||147||Papua New Guinea|
|45||Taiwan||101||Bosnia and Herzegovina||157||Belgium|
|46||Lithuania||102||Congo, Dem. Rep.||158||Cabo Verde|
|53||Honduras||109||United Arab Emirates||165||Mauritania|
Additionally, the countries were also broken down into seven global regions. The lower the average rank, the better.
|Asia & Pacific||70|
Broken down by region, we can see that the economic situation of the North America is still quite good; it is the highest ranked region. The United States and Canada are ranked 79th and 41st, respectively. However, the USA is 182nd of 189 for public debt per capita and 169th for external debt. It is 131st in GDP growth and tied for 116th for government reserves. These issues could create long term problems for the US Economy.
Thus, it appears that having foreign stocks is worthy of a look in your investment portfolio. If you can focus on countries that are positioned the best economically, your risk can be mitigated with problems underlying the United States economy.
Just because a country is ranked well here does not mean all of the publicly traded corporations that you can invest in will have good performance in your portfolio. The ranking here does not release you of the need to vet the company, country, or region before investing in it.
A look at ways to invest in these countries or regions will follow in a later post.
This article is for informational purposes only. It does not serve as investment advice or credit analysis. It should not be used as a recommendation to purchase any investments.