9.) France
10.) Russia
11.) Norway
12.) South Korea
13.) Turkey
14.) Netherlands
15.) Brazil
So how did David come up with his ranking? He started with four hypotheses:
1.) Countries exposed to the European sovereign debt crisis should be classified as higher risk.
2.) Developed market countries with stable currencies during volatile periods should be classified as lower risk.
3.) Emerging market countries with more cyclical sector exposure may be higher risk.
4.) Emerging market countries with better fiscal and growth situations should be classified as lower risk.
He used these hypotheses to come up with a rough ranking of countries’ riskiness and then confirmed that list with one-year volatility measures of country MSCI indices.
To be sure, a country’s riskiness can shift over time with changing economic conditions. For instance, if the European sovereign debt crisis were solved tomorrow, the risk ranking above would certainly change. But for now, the country risk ranking above can potentially help investors adapt their portfolios to today’s macroeconomic landscape.