Experts have become more confident about the US and Japan, but more anxious over investor hotspots – including China, Brazil, Russia and South Africa – as emerging market risk aversion has broadly increased. Yet the picture remains nuanced, with the political and economic dimensions to the eurozone crisis continuing to cause alarm, pockets of instability attenuating risk profiles across the Middle East, and Latin America offering comparatively safer options in spite of Brazil slipping and the familiar Argentina/Venezuela slide continuing.
In the latest results of Euromoney’s Country Risk Survey, participating economists and other country-risk analysts saw a mixed picture of sovereign risk across the main global regions, with virtually all parts of Europe – including the eurozone, CEE and CIS – affected by further score declines, along with four of the five Brics (China, Brazil, Russia and South Africa).
Other parts of the world were perceived to be safer, especially the Americas. In total, 79 of the 186 countries surveyed became riskier (had deteriorating scores) during H1 2013, 96 became safer (with improving scores) and 11 were unchanged.
Europe’s fiscal crisis and its aftermath continued to impart a heavy burden on many G10 member states, including France, the UK, Italy and the Netherlands, which have all seen their ECR scores fall in response to weak economies, stuttering fiscal consolidation programmes and political vulnerabilities, to varying degrees.
The fracturing of the G10 has continued, with the dispersion of scores between the safest sovereign (Switzerland) and the riskiest (Italy) widening to a record 32.3 points. Country-risk experts have become more confident in Switzerland, Canada and the US, as well as Japan after the political changes there and the consequent shift in economic policy to depreciate the currency, boost growth and eradicate years of deflation.
Central and Eastern Europe has seen the largest average score decline of any region, which, although largely explained by the problems in Cyprus and Hungary, is also due to deteriorating sentiment in Slovenia, Turkey, Bulgaria, Romania and other smaller but higher-risk sovereigns since December.
Many countries with deteriorating trends in recent years have seen their scores continue to fall during H1 2013, with 12 countries exhibiting double-digit falls in the global rankings, led by Egypt (down 20 places to 136th), Cyprus (18 places to 60th), Venezuela (17 places to 131st) and Montenegro (15 places to 130th).
While Australia has entered the top-10 safest countries on ECR’s global risk data table in ninth place – and Hong Kong has regained 10th spot – the world’s top-three safest countries are located in Europe, led by wealthy hydrocarbon producer Norway, which is still the world’s safest sovereign on 89.7 points out of 100.
Sentiment toward Latin America has improved substantially. The region, which was trailing Asia by a three-point margin in 2010, is now considered a safer option overall, although invariably country-specifics are important.
Rising sentiment toward countries that have avoided political and financial instabilities, and where economies and fiscal balances are comparatively strong, such as Chile, Mexico, Uruguay, Ecuador and Paraguay, are all notable in that regard. By contrast, the problems in Argentina and Venezuela have worsened, amid increased risk in Brazil – one of the region’s worst performers during Q2 and the scene of unprecedented unrest.
Various pockets of instability have similarly weighed upon the Middle East this year, in Bahrain and Syria especially, and throughout most of the MENA region. However, the impact has been mitigated by resilience elsewhere, including the other Gulf states where hydrocarbon prices – though dipping recently – should continue to boost liquidity, FX reserves and fiscal balance sheets to support consumption and investment.
More than 400 economists and other experts from a range of financial and other institutions take part in Euromoney’s Country Risk Survey. They evaluate the risks faced by international investors in more than 180 markets, scoring countries across a range of political, economic and structural criteria, which are added to values for capital access, credit ratings and debt indicators, and aggregated every quarter to provide a total risk score.