Country Allocation » Stock Selection » Implementation
Twenty-five percent of CoL’s value added is via our top down country allocation methodology. This top down element is a three-stage process:
Our Macroeconomist collects relevant economic data on the 35 countries that comprise our emerging markets country universe. This information is derived from numerous business and governmental sources within these countries as well as supranational organizations. CoL supplements this data with in-house research to form a quarterly databank of key, leading economic indicators for our country universe. A continuous assessment of political risk in each country within the emerging market universe is an integral part of the Stage 1 process. A view is taken of the degree of political stability and whether the political situation in each country is conducive to foreign investment. While necessarily subjective, the process assesses the maturity of the political system and institutional framework, the level of democracy and fairness of the election process, the election calendar i.e., presidential, prime ministerial, parliamentary, gubernatorial and municipal elections and foreign policy stance. The Stage 1 process also takes into account whether the government is eager to maintain good relations with multilaterals, such as the International Monetary Fund and World Bank, and co-operates with neighboring states through a regional economic/political forum, for example, through ASEAN or NAFTA.
Stage 2
Our Macroeconomist analyzes the collated information in depth and ranks the 35 countries from the most favored, or best positioned, to least favored based upon a number of key economic criteria using a mix of judgment and experience, This results in recommendations of “overweight”, “neutral” or “underweight” versus the constituent countries of our benchmark index.
Twenty-five percent of CoL’s value added is via our top down country allocation methodology. This top down element is a three-stage process:
Our Macroeconomist collects relevant economic data on the 35 countries that comprise our emerging markets country universe. This information is derived from numerous business and governmental sources within these countries as well as supranational organizations. CoL supplements this data with in-house research to form a quarterly databank of key, leading economic indicators for our country universe. A continuous assessment of political risk in each country within the emerging market universe is an integral part of the Stage 1 process. A view is taken of the degree of political stability and whether the political situation in each country is conducive to foreign investment. While necessarily subjective, the process assesses the maturity of the political system and institutional framework, the level of democracy and fairness of the election process, the election calendar i.e., presidential, prime ministerial, parliamentary, gubernatorial and municipal elections and foreign policy stance. The Stage 1 process also takes into account whether the government is eager to maintain good relations with multilaterals, such as the International Monetary Fund and World Bank, and co-operates with neighboring states through a regional economic/political forum, for example, through ASEAN or NAFTA.
Stage 2
Our Macroeconomist analyzes the collated information in depth and ranks the 35 countries from the most favored, or best positioned, to least favored based upon a number of key economic criteria using a mix of judgment and experience, This results in recommendations of “overweight”, “neutral” or “underweight” versus the constituent countries of our benchmark index.
- Annual % rate of growth in real GDP
- Industrial production % change on year ago
- Consumer Price Index % change on year ago
- Trade balance (latest 12-month period)
- Current account balance (latest 12-month period)
- Foreign reserves (latest versus year ago)
- Currency exchange rate versus USD (latest versus year ago)
- Short-term interest rates (%)
- Forecast stock market price/earnings ratio
- EBITDA Growth forecast (%)
- 6-month stock market index estimate (S&P/IFCG Index)
- Economic policy framework (monetary/fiscal policy mix)
- Overall health of government finances (budget deficit as a % of GDP)
- Level of inward foreign investment and current account coverage, or level of capital flight (if applicable)
- Exchange rate regime (fixed, free-floating, ‘managed float’), and hence, the ability of a country to absorb external economic shocks through exchange rate adjustment.