Building a Unique Country Risk Framework

Emerging markets present both immense opportunities and real risks for investors. Recognising the complexity of these markets, we have developed a robust Country Risk Framework to guide our investment decisions. This tool, introduced by our Macroeconomics Advisor, Nick Stadtmiller, combines social and macroeconomic indicators to offer a holistic view of potential risks.

Framework Overview

Social Indicators

Development: Education, healthcare access, and basic services are critical metrics.
Institutions: Corruption, rule of law, and government effectiveness shape long-term growth prospects.
Environment: Climate vulnerability highlights exposure to environmental risks.

Macroeconomic Indicators

Growth & Inflation: Per-capita GDP trends, growth rates, and inflation volatility provide insights into economic stability.
External Sector: Current account balances and external debt levels help assess a country’s global integration.
Fiscal Health: Deficits and debt levels indicate fiscal sustainability.

How It Works

Using data from global organizations such as the World Bank and IMF, our framework ranks countries across these indicators, creating a visual heatmap. Countries are categorised into quintiles, from top performers to high-risk outliers. This structured, systematic approach allows us to identify emerging opportunities while mitigating exposure to systemic risks.

Why It Matters

By incorporating both social and macroeconomic factors, our framework goes beyond traditional analysis. This approach also enables us to take a quantitative and global view of risks, avoiding the danger of overlooking key issues. By systematically categorising risks across countries and indicators, we ensure a comprehensive assessment of potential challenges. Importantly, the framework serves as the foundation for further ad hoc analysis, allowing us to drill down into specific risks as needed. This layered methodology avoids the trap of siloed or correlated risks that could negatively impact multiple markets simultaneously.

The Outcome*

*Where 5 is the best