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ECR Survey Results Q1 2013 Results: Springtime bounce for Americas and Japan

With Euromoney’s Country Risk Survey showing improved assessments for much of the Americas and Japan during Q1 2013, it is tempting to believe that the increased global risks seen in recent years are finally abating.

However, with the eurozone’s problems continuing, and various domestic political, economic and structural issues affecting other countries worldwide, there are still many sources of acute anxiety for global investors to ponder. The first quarter marked a turning point for the US, according to Euromoney’s latest country risk survey – a quarterly update of the views of more than 400 economists and other experts covering 186 sovereign nations.

Having overcome the acute political hurdles connected to its fiscal crisis, and with the economy still growing, albeit unevenly, the world’s largest economy saw its country risk score rebound up to its Q3 2012 level.

The improvement in its score – a combination of political, economic and structural risk assessments, combined with values for capital access, debt indicators and credit ratings – was one of several across the Americas during the period, encompassing many of the larger investment locations, including Canada, Mexico, Chile, Uruguay, and even Brazil and Peru to a lesser extent.

Confidence in Latin America was nonetheless marred by the continuing trend escalation in risk for Argentina and Venezuela, two countries that have long decoupled from the region’s otherwise promising prospects.


Asia’s risks have divided opinions. India, Vietnam, Thailand and Taiwan have all seen improving scores. However, although North Korea’s war-footing has added an air of tension, South Korea is becoming riskier mainly due to weakened trade flows and domestic factors linked to public spending by the new government.

Indonesia and Malaysia have also registered score declines, with moderate deterioration in China’s risks similarly imparting a negative impact on the region, notably in Hong Kong.

Yet the Asian region has also seen the beginnings of a comeback for Japan. Long affected by its crippling debt problems, stunted growth and deflation, risk experts have been encouraged by the December election victory of prime minister Shinzo Abe and his bold plan to double money supply growth in an effort to devalue the yen, kick-start economic growth and rescue the nation from its debt burden.

Japan’s score is still not far off its record low, but the Q1 rebound is notable nevertheless, and has seen the trend narrowing of its score differential with China begin to reverse.

Still, the eurozone crisis continues to cause anguish for global investors, as experts once again have to face up to the interminable questions of whether the single-currency zone will survive, and if it does what are its prospects?

The eurozone average score has fallen to a record low of 66.5, widening the gap with North America to 12.3 points – double what it was just three years ago.

While risks for some euro members have eased this quarter, for many, such as Ireland, Greece and Portugal, they represent stabilization at best, as their scores are still close to record lows. And contrasting with the lower risk perceptions of Austria and Slovakia, Italy and Spain have seen further large score declines.

With attentions focused on the transfer risks associated with small offshore locations, scores have also fallen for Cyprus and Malta. Malta is considered to be vulnerable to capital flight after the botched Cypriot crisis aimed at extending bail-in conditions to insured depositors to limit Europe’s pooled taxpayer liability.

Africa’s risks, meanwhile, remain as diverse as its geography. In northern parts, increased political and security risks spanning across Algeria, Egypt, Libya and Tunisia – but not Morocco – have resulted in large score declines since the end of last year.

It highlights the region’s uncertain prospects since the Arab Spring uprising, including the fiscal costs of their weakened economies, capital outflows and reconstruction needs.

In sub-Saharan parts, too, confidence in South Africa has slipped, alongside Ghana. Yet for most other sub-Saharan Africa (SSA) issuers – Namibia, Nigeria, Tanzania and post-election Kenya – scores have improved, offering investors safer, though still comparatively high-risk, portfolio options.

In all, 90 of the 186 surveyed countries became riskier during Q1 2013, two were unchanged and 94 became safer – a more even split compared with previous surveys.

This article was originally published in Euromoney Country Risk.

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