Risk List

In the great blogging tradition of pointing readers to lists, here is a link to an Economist list rating the riskiness of the riskiest large economies in the world. Note: 1=least risky, 15=most risky. Economist says that their "crude gauge" is "based on the size of current-account balances, budget deficits, credit growth and inflation." China comes at 5th least risky after Thailand, Malaysia, South Korea, and Taiwan. Those three other major indicators of emerging markets, Russia, Brazil, and India are ranked in the most risky half at 8, 12, and 15. The riskiest economies are characterized by high inflation and credit growth, and large budget deficits which makes it hard for government policy to correct weaknesses in the economy.

The authors of the article also look to the stock market indicators to get a grasp of the economies of these countries. China's price/earnings ratio for A shares is 40, which is half that of Japan in the '80s and less than half of the NASDAQ's 90 in 2000. The p/e for B shares has dropped to 22 which is almost half of the high for B shares of 4o in 2000. China's stock market may be becoming less risky.

The article closes with the comment that the greatest immediate threat to emerging economies is an American recession. But, this threat is decreasing. America is increasingly a less important purchaser of the goods of emerging economies. Only 24% of China's exports go to America, which is down from 34% in 1999. The authors say that this is why America's weaker economy this past year has had little effect on the boom of emerging economies. Also, emerging economies have purchased over half of America's exports for the first time, which the authors say has helped "prop up the economy of the United States."

Emerging economies' stock markets may have one good thing decreasing their risk: their investors haven't been around long enough to cook up potentially dangerous things like security backed assets. Yet.