AFMC - Country Risk: My 2024 Data Update

2024-07-25 08:20:00 ET

Summary

• I highlight the differences on four major dimensions - political structure, exposure to war/violence, extent of corruption, and protections for legal and property rights, with the focus firmly on the economic risks rather than on social consequences.
• If a country derives 50% of its economic output from iron ore, a drop in the price of iron ore will cause pain not only for mining companies but also for retailers, restaurants and consumer product companies in the country.
• We computed EV to EBITDA multiples, based upon aggregate enterprise value and EBITDA, by country, in July 2024.

Country Risk: My 2024 Data Update

After the 2008 market crisis, I resolved that I would be far more organized in my assessments and updating of equity risk premiums, in the United States and abroad, as I looked at the damage that can be inflicted on intrinsic value by significant shifts in risk premiums, i.e., my definition of a crisis. That precipitated my practice of estimating implied equity risk premiums for the S&P 500, at the start of every month, and following up of using those estimated premiums when valuing companies during that month. The 2008 crisis also gave rise to two risk premium papers that I have updated each year: the first looks at equity risk premiums, what they measure, how they vary across time and how best to estimate them, with the last update in March 2024 . The second focuses on country risk and how it varies across geographies, with the focus again on determinants, measures and estimation, which I update mid-year each year. This post reflects my most recent update from July 2024 of country risk, and while you can read the entire paper here , I thought I would give you a mildly abridged version in this post.

Country Risk: Determinants

At the risk of stating the obvious, investing and operating in some countries is much riskier than investing and operating in others, with variations in risk on multiple dimensions. In the section below, I highlight the differences on four major dimensions - political structure, exposure to war/violence, extent of corruption, and protections for legal and property rights, with the focus firmly on the economic risks rather than on social consequences....

For further details see: