Blackrock Sovereign Risk Update.pdf

7/30/2019 Blackrock Sovereign Risk Update.pdf

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BLACKROCK

INVESTMENTINSTITUTE

Mapping Sovereign riSkBSRI QUARTERLy UpdATE

JANUARy 2013


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[ 2 ] M a p p i n g S o v e r e i g n r i S k

BlackRock Investment InstItuteThe BlackRock Investment Institute leverages the rms eertise across asset classes, client grous an

regions. The Institutes goal is to rouce inormation that makes BlackRocks ortolio managers better

investors an hels eliver ositive investment results or clients.

Maing Sovereign RiskOur latest quarterl uate o the BlackRock Sovereign Risk Ine (BSRI)

highlights Jaan, the Unite States an selecte movers among the 48

countries we track. A newl create interactive BSRI allows or viewing

iniviual countr scores, comaring two countries an sorting overall

rankings b ine comonents.

Hhhs f h qu dd 31 Dcmb:

J ell two sots in the rankings as a result o its sharl eteriorating

scal balance a sace worth monitoring in 2013 as a new government an

central bank governor settle in.

The Ud Ss remaine at 15th lace even as it teetere on the ege o

the scal cli o automatic ta hikes an sening cuts.

Ch, aus an nw Zd move u in the rankings, with Australia

juming three sots thanks to an imrove rimar buget balance.

ids role imrove on most ronts, but the countr remaine stuck at39th lace. Suh afc roe two notches to 36th lace.

drawing on a ool o nancial ata, surves an olitical insights, the BSRI

rovies investors with a ramework or tracking sovereign creit risk. The

ine uses more than 30 quantitative measures, comlemente b qualitative

insights rom thir-art sources.

The ine breaks own the ata into our main categories that each count

towar a countrs nal BSRI score an ranking: Fiscal Sace (40%), Willingness

to pa (30%), Eternal Finance position (20%) an Financial Sector Health (10%).

Fiscal Sace inclues metrics such as ebt to Gdp, the ebts term

structure, ta revenues an eenenc ratios.

Willingness to pa measures a governments erceive eectiveness an

stabilit, an actors such as erceive corrution.

Eternal Finance position inclues eosure to oreign currenc ebt an

the state o the current account balance.

Financial Sector Health gauges the banking sstems strength.

For ull escritions, see Introducing the BlackRock Sovereign Risk Indexo

June 2011. The BSRIs inuts are uate at irregular intervals, meaning

some ratings changes ma onl refect the timing o ata releases. Small

changes in ratings can sur big changes in rankings, as man issuers are

bunche together in the ine. The BSRI is not meant to orecast the

creitworthiness o countries.

ExECUTIVE dIRECTOR

Lee Kemler

CHIEF STRATEGIST

Ewen Cameron Watt

ExECUTIVE EdITOR

Jack Reerink

Bji Br

BlackRock

Model-Based

Fixed Income Team

t

crii

BlackRock

Investment Institute

Gr Fr

BlackRock

Model-Based

Fixed Income Team

si mrr

BlackRock

Model-Based

Fixed Income Team

ew cr W

Chief Investment

Strategist, BlackRock

Investment Institute

The oinions eresse are as o Januar 2013 an ma change as subsequent conitions var.
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B S r i Q U a r t e r l y U p D a t e [ 3 ]

Japan: FRom Bad to WoRseThe scal role o Jaan worsene enough to cause it to

sli two sots to 35th lace, even as its other BSRI

comonents imrove. Jaan now ranks just ahea o

South Arica but below the likes o Turke, Inonesia an

Slovakia. See the chart on the right.

Jaan slie into recession in the ourth calenar

quarter, accoring to the most recent BlackRock

Economic Ccle Surve. See the chart at the to o the

net age. This haene as the countrs overall ebt

rose an its rimar balance to Gross domestic prouct

(Gdp) went ownhill.

Jaans ublic ebt buren the highest in the eveloe

worl in relation to Gdp kees growing. The market is

eecting more scal stimulus rom the incoming

government an looser monetar olic rom a new

central bank chie to be aointe in Aril.

a WorlD oF Sovereign riSkBSri cu s b qu, Dcmb 2012

Source: BlackRock.

1 Norwa

2 Singaore

3 Switzerlan

4 Sween

5 Finlan

6 Canaa

7 Australia

8 Taiwan

9 German

10 Chile

t

11 New Zealan

12 South Korea

13 denmark

14 Netherlans

15 USA

16 China

17 Austria

18 Malasia

19 peru

20 Russia

11-20

21 Israel

22 Czech Reublic

23 Unite Kingom

24 Thailan

25 philiines

26 polan

27 France

28 Colombia

21-28

29 Brazil

30 Belgium

31 Meico

32 Slovakia

33 Inonesia

34 Turke

35 Jaan

36 South Arica

37 Croatia

38 Slovenia

29-38

39 Inia

40 Sain

41 Hungar

42 Argentina

43 Irelan

44 Ital

45 Venezuela

46 Egt

47 portugal

48 Greece

B

Japan: lanD oF tHe riSing DeBt

-1.5

-1

-0.5

0

0.5%

30 September 2012 31 December 2012

BSRISCORE

Fiscal

Space

Willingness

to Pay

External

Finance

Financial

Sector

Overall

BSRI

Source: BlackRock.

Cc fc chs
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[ 4 ] M a p p i n g S o v e r e i g n r i S k

On the surace, all this woul aear to increase Jaans

ebt loa. The countrs 12-month orwar buget ecit

shows little signs o imroving, esite being slightl o

lows seen rom Ma 2011 until the mile o 2012. See

the chart below.

On the other han, prime Minister Shinzo Abe ma

succee in weakening the countrs currenc an infating

awa the ebt in the long run.

A weaker en shoul benet Jaanese equities which

still aear chea comare with other markets an their

own histor. A contrarian ick or 2013 is buing

Jaanese eorters while selling the en currenc, asetaile in our Slow Turn Ahead? 2013 Investment

Outlook o december 2012.

unIted states: steady she Goespolitical sunction was on isla in Washington uring

the everish negotiations to avoi the scal cli over the

New year holia.

The last-minute eal was better than nothing, we think,

but its limite scoe means more torture buget talks

an market volatilit ahea. For etails, see BlackRocks

US Fiscal Cliff Deal: A Stopgap, not a Solution o Januar

2013 an our ost-US election analsis Now for the Hard

Part o November 2012.

The eectiveness or imotence o government lies

at the heart o our Willingness to pa score. It is

imortant to realise, however, this metric an others o

not turn on a ime.

Willingness to pa also measures ercetion o

governments stabilit, the rule o law an other actors

that oster a avourable investment climate.

For all the olitical rama uring the ebt ceiling crisis in

2011, the 2012 resiential election camaign an the

recent scal cli negotiations, the US score in this areahas hel stea since the summer o 2011.

To be sure, the erios o olitical uncertaint have ha a

(temorar) imact. See the chart above. The issue at the

heart o the buget arguments US Fiscal Sace has

not buge b our measures, however.

The Unite States still ranks 11th in Willingness to pa,

ahea o Australia an the UK. Overall, the countr

remains in 15th lace, between the Netherlans an China.

Digging a Deep HoleJs xcd bud dfcs, 2008-2013

-12

-10

-8

-6

-4

-2

0%

BUDGETDEFICITOVERG

DP

2008 2009 2010 2011 2012 2013

Sources: Consensus Economics and Bloomberg.Note: Budget deficits are 12-month forecasts by economists.

lotS oF DraMa WitH little iMpaCtUS Wss p sc, 2011-2012

0.8

0.9

1

1.1%

BSRISCORE

Jun 11 Sep11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12

US Election CampaignDebt Ceiling Crisis Fiscal Cliff Talks

Source: BlackRock.

DooM anD glooMecmss ssssm f Js cm, Dcmb 2012

Early-cycle Expansion 23%

Late Recession 59%

Early Recession 18%

Source: BlackRock.
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B S r i Q U a r t e r l y U p D a t e [ 5 ]

movInG up: chIna, austRalIa

and neW ZealandChina rose two sots to 16th lace on the back o higher

government revenues as a ercentage o Gdp. Chinas

Willingness to pa score imrove ue to the relativel

smooth once-a-ecae leaershi change, as etaile in

The Next Generation: What to Expect from Chinas New

Leadership b BlackRocks Asia team in November 2012.

When China sneezes, its raw materials sulier Australia

catches a col, investors sa these as. In BSRI terms,

however, the luck countr aears to be taking its fu

shots. It has remaine largel immune to Chinas

slowown in economic growth last ear. Its stea march

u accelerate this quarter when it jume three

notches to seventh lace, mainl thanks to an imrove

rimar balance.

Increases in government receits have more than osetan utick in sening, an the countr is eecting a

surlus this scal ear, accoring to theAustralian

Government Budget 2012-2013. Both Australia an New

Zealan are showing imroving rimar balances. See the

chart on the right.

New Zealan also move u in the BSRI rankings an now

occuies the 11th sot. The countrs Willingness to pa

score is the highest in the BSRI an its scal osition is

imroving. New Zealans nancial sector health imrove

ue to bank owngraes in other countries.

DoWn UnDer BUDgetingexcd bud dfcs, 2008-2013

-6

-5

-4

-3

-2

-1

0

1

2

3%

BUDGETDEFICITOV

ERG

DP

2008 2009 2010 2011 2012 2013

Australia New Zealand

Sources: Consensus Economics and Bloomberg.Note: Budget deficits are 12-month forecasts by economists.

WHoS Up anD WHoS DoWnBcrc S rs idx rs, Dcmb 2012

-1.5

0

1

2%

BSRIS

CORE

Australia

Up three

notches to 7th

N. Zealand

Up two

notches

to 11th

Norway

Singapore

Switzerland

Sweden

Finland

Taiwan

Germany

Canada

Chile

Australia

Denmark

S.

Korea

NewZealand

Netherlands

Austria

USA

Peru

China

Russia

Malaysia

CzechRepublic

Israel

UK

Thailand

Poland

Philippines

Indonesia

France

Colombia

Belgium

Japan

Brazil

Mexico

Slovakia

Croatia

S.

Africa

Slovenia

Turkey

India

Spain

Hungary

Argentina

Ireland

Italy

Egypt

Portugal

Venezuela

Greece

China

Up two

notches to 16th

United States

Unchangedat 15th

India

Unchanged at 39th

South Africa

Down two

notches to 36th

Japan

Down two

notches to 35th

Sources: BlackRock, Bloomberg, IMF, World Bank, central banks, Eurostat, BIS, Consensus Economics, UN, Moodys, Standard and Poors, Fitch, PRS Group and

www.euromoneycountryrisk.com.Note: Ranking changes based on movement from 8 October to 31 December 2012.
http://www.blackrock.com.hk/content/groups/hongkongsite/documents/literature/china-leadership-changenov2012.pdfhttp://www.blackrock.com.hk/content/groups/hongkongsite/documents/literature/china-leadership-changenov2012.pdfhttp://www.budget.gov.au/2012-13/content/overview/html/overview_36.htmhttp://www.budget.gov.au/2012-13/content/overview/html/overview_36.htmhttp://www.budget.gov.au/2012-13/content/overview/html/overview_36.htmhttp://www.budget.gov.au/2012-13/content/overview/html/overview_36.htmhttp://www.blackrock.com.hk/content/groups/hongkongsite/documents/literature/china-leadership-changenov2012.pdfhttp://www.blackrock.com.hk/content/groups/hongkongsite/documents/literature/china-leadership-changenov2012.pdf


6/6

In and (neaRly) out oF sIck Bay:

south aFRIca and IndIaSouth Arica sli two sots to 36th lace mainl ue to a

rail worsening current account ecit. Anecotal

evience has mone feeing the countr at a rai ace,

an the BSRI aears to refect this. South Aricas

eternal ebt osition ecline while olitical unrest an

wiesrea strikes hele ull own its Willingness to pa

score. See the chart below.

Inia, on the other han, looks to be on the men. We

highlighte its eteriorating scal role si months ago

a namic that ha been in lace since the ourth quarter

o 2011. The tren reverse over the ast quarter, although

it (again) i not result in a ranking change.

Inias Fiscal Sace imrove on a lower ebt-to-Gdp level

an an imroving rimar balance. The countrsWillingness to pa score imrove as well, thanks to recent

reorms on oreign investment. See the chart below.

SoUtH aFriCa: Slip SliDin aWay

-0.6

-0.4

-0.2

0

0.2

0.4

0.6%


BSRISCORE

Fiscal

Space

Willingness

to Pay

External

Finance

Financial

Sector

Overall

BSRI

Source: BlackRock.

inDia: tHe elepHant getS Better

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4%


BSRISCORE

Fiscal

Space

Willingness

to Pay

External

Finance

Financial

Sector

Overall

BSRI

Source: BlackRock.

This paper is part of a series prepared by the BlackRock Investment Institute and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or

solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of January 2013 and may change as subsequent conditions vary. The information and opinions

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