International investors are facing increasing challenges in
finding stable countries with the resilience to withstand a
potential global recession. The United States is struggling with
weak growth, high government debt, and the looming "fiscal cliff".
Japan has accumulated government debt of over 200% of annual GDP
and is faced with the demographics of an aging populace. Europe's
troubles with high debt and high unemployment are well publicized.
Market gains in the developed countries seem to be driven more by
central bank actions and government policies than by solid returns
from their representative companies.
Investments in developing economies have been heavily focused on
the BRIC countries of Brazil, Russia, India and China for the past
decade. The BRIC nations may still provide good opportunities for
the future as these burgeoning nations continue their march toward
industrialization. In the short term, China is struggling to
coordinate a "soft" landing for their slowing economy and India is
dealing with high inflation and the costs of transforming their
infrastructure for this new century. A possible world-wide
recession will have a major impact on all of the economies in our
increasingly inter-linked global markets. Countries with strong
balance sheets, friendly business environments, and stable
governments will be more capable of withstanding the impacts of a
global recession than their less responsible neighbors and will
have the ability to more quickly bounce back from a global
So where do investors turn for stability in an unstable world?
Do any countries still exist with solid governments, a friendly
business environment, growing economies and reasonable debt levels?
An examination of data from the International Monetary Fund and The
World Bank indicates that a handful of these countries still exist.
The IMF maintains a database of economic outlook data for 184
countries that is freely available
I began my search for stable economies by downloading the latest
IMF data from April and filtering out the smallest and poorest
nations by limiting my search to countries with at least 1 million
people and a current per-capita GDP of at least $2,000. I then
looked for countries with growing economies and reasonable debt
levels by filtering the data based on average GDP growth forecasts
of greater than 4% for the 2012-2017 periods and by limiting total
government debt to less than 50% of GDP over the same period.
Now that we have a good forecast of economic conditions, we need
a useful metric for gauging the business environment. The World
Bank Group ranks countries according to the
of doing business
by looking at a number of factors including ease of starting a
business, obtaining construction permits, contract enforcement, and
investor rights. I further filtered the list of stable countries by
limiting the list to countries in the top 50 of the ease of doing
business rank. Just seven countries met all of the criteria.
GDP per Capita
GDP Growth Estimate
Govt. Gross Debt
Ease of Doing Business Rank
Raw statistics alone rarely provide all of the information
necessary to make an intelligent investment. Tunisia was a surprise
entry to this list with expected average growth of 5%. I manually
eliminated Tunisia since the IMF data does not account for the
recent turmoil related to the "Arab Spring" revolution. Thailand is
faced with internal turmoil and a recent government crackdown and
Colombia is recovering from years of crime that have plagued the
country. Both of these countries were removed from the list of
stable countries also. One country that just missed the list that
warrants further attention is South Korea with an expected GDP
growth from 2012 to 2017 of 3.91% and an ease of doing business
rank of 8.
Exchange traded funds provide the common investor the chance to
benefit from the economies of these stable countries while
maintaining a level of diversification not found with individual
stocks. The iShares MSCI Chile Investable Index (
) has provided a 3 year average return of 12.08% with a yield of
1.6%. The iShares MSCI Hong Kong Index (
) and the iShares Taiwan Index (
) provide yields of over 3% to help offset the lower 3 year average
return of just over 8% for these funds. The iShares All Peru Capped
) has provided a strong 3 year return of 15.81% and yields 2.75%.
The iShares MSCI South Korea Index (EWY) and the First Trust South
Korea AlphaDEX (FKO) has attractive P/E valuations of 9 and 8,
3y Avg Return
||iShares MSCI Chile Investable Idx
||iShares MSCI Hong Kong Idx
||iShares MSCI All Peru Capped Idx
||iShares MSCI Taiwan Idx
||iShares MSCI South Korea Idx
||First Trust South Korea AlphaDEX
I have no positions in any stocks mentioned, and no plans to
initiate any positions within the next 72 hours. I wrote this
article myself, and it expresses my own opinions. I am not
receiving compensation for it. I have no business relationship with
any company whose stock is mentioned in this article.
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