Strewth. Australians can no longer play cricket, but they certainly know how to run their own country. To see Australia's leaders - Julia Gillard, Kevin Rudd and Tony Abbott - squabbling during this year's general election, you might not think so, but the statistics bear out the contention.
The evidence is shown in the table, which is an attempt to answer the question: which country is the best place in the world to park your capital? It's pertinent for anyone with capital to park and it's topical for me as I build the Bearbull Global Fund. This will allocate capital across the globe, both by region and by asset class, with the aim of making stable returns that are above the long-term growth rate in the UK's nominal output. In other words, the fund's sales pitch would be: buy this fund and your capital will grow faster than the average Briton's, but without the volatility that could cause sleepless nights.
| Global rankings | Per capita GDP | Human Development | Happy Planet | Corruption | Govt debt | Weighted rank |
|---|---|---|---|---|---|---|
| Australia | 10 | 2 | 102 | 8 | 22 | 17.6 |
| Norway | 3 | 1 | 88 | 10 | 101 | 22.1 |
| Singapore | 4 | 27 | 49 | 1 | 122 | 26.6 |
| USA | 6 | 4 | 114 | 22 | 83 | 27.1 |
| Canada | 12 | 8 | 89 | 6 | 111 | 27.2 |
| Germany | 20 | 10 | 51 | 15 | 111 | 28.2 |
| UK | 19 | 26 | 74 | 20 | 108 | 35.7 |
| Brazil | 76 | 73 | 9 | 69 | 100 | 69.4 |
| China | 97 | 89 | 20 | 78 | 21 | 75.5 |
| Russia | 51 | 65 | 108 | 154 | 8 | 77.2 |
Sources: Per capita GDP (0.3) - IMF; Human Development Index (0.3) - United Nations; Happy Planet Index (0.1) - New Economics Foundation; Corruption Perceptions Index (0.2) - Transparency International; Govt debt/GDP (0.1) - CIA World Factbook 2009. Figures in brackets are weightings in composite index. | ||||||
Last week I explained how the core of the global fund would most likely have an excess weighting in emerging-markets equities, plus a good presence in developed-world equities, balanced by holdings in oil and gold to stabilise returns. This weeks' exercise supplements that process. Its underlying assumption is that there is more to investing than placing your capital in the countries that are likely to grow the fastest.
Broadly speaking, it may be sensible to consider a nation's investment merits under three headings – wealth, stability and potential. Wealth – because the wealthiest tend to get wealthier still; at least, they have a head start that gives them a big advantage. Stability – because the greater the stability and the honesty of the institutions that run a country, the easier that wealth creation becomes. Potential – because the quality of the human capital within a country is vital; time and again it is shown to be more important than a country's natural resources.
However, when you combine wealth, stability and potential with lots of natural resources then perhaps you are really onto a winner, which may account for Australia's and Canada's position in the table; even Norway's to an extent. But more of that in a moment.
First, let's explain fully what the table means. It takes five criteria that encapsulate wealth, stability and potential. These five are: a nation's per capita output (GDP) expressed in so-called purchasing-power parity, which aims to remove shifts in wealth caused by exchange rates; the United Nations' Human Development Index, which ranks countries by factoring life expectancy and likely education into an equation with GDP; the Happy Planet Index, which aims to quantify human well-being, as measured by life expectancy and satisfaction, for every unit of impact on the environment; the Corruption Perceptions Index, which is a rather subjective formulation of the propensity of a nation's officials to abuse public office for private gain, as produced by Transparency International, a pressure group; and government debt as a proportion of national output. The data is each country's latest global ranking for each criterion. So, Australia has the 10th highest per capita GDP, is second in the Human Development Index, only 102nd in the Happy Planet Index and so on.
The weighted rank is the aggregate score of the five rankings where each is multiplied by a factor that is Bearbull's subjective assessment of the importance of each criterion for an investor. Per capita GDP and the Human Development Index – despite criticism that the latter is simplistic – are weighted heavily. The corruption index gets a highish weighting because it tackles a serious subject, albeit one that's naturally elusive. Government debt over GDP gets a low weighting because it's not that significant, as does the Happy Planet Index because it's bordering on the loopy. Also, let's make clear that the table is not a top 10 of the world's best performing countries. Anything but. Arguably it shows how far Russia (predictably) and China still lag behind.
And the winner is . . . well, we know that. But it was a bit of a surprise. I expected Norway or perhaps Singapore to top the list. Indeed, this exercise started out as a way to justify putting some of the fund's capital into these two countries. That's still likely to happen, but clearly I must add Australia, and quite possibly Canada and Germany, to this list. Simultaneously I might cool it a little on the so-called BRIC countries – especially Russia, for which the table generates a nightmarish image.
Still, Bearbull always takes the positives. Look at it this way - Australia was founded a nation for criminals and look at it now. That must offer hope that even Russia can improve.
