Charts of the Day: The Demise of Global Diversification

Two telling images from Aswath Damodaran's latest blog post.

July 13, 2017

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global-warmingThe pace of globalization has slowed down – but it’s impact can still be found in the world’s economies and capital markets where investors today face a tough conundrum: where in the world can they go to find global diversification?

Stern School of Business professor, Aswath Damodaran today posted on this very topic – it’s called the Dark Side of Globalization: An Update on Country Risk! (exclamation point is Damadoran’s). If you haven’t visited his blog, Musings on Markets, you should – it’s a trove of great charts and compelling ideas.

Two charts stood out for me in the post and I’ve shared them below. Both support Damodaran’s argument that as the largest companies in the world become multinationals, deriving revenue from outside their domestic economies, the idea of measuring country risk becomes a lot harder (where do you start when a U.S. company like Accenture did virtually all of its sales outside the U.S. in 2014?) and at the same time more important than ever.

The chart below shows the way in which foreign sales for U.S. companies are shifting away from the UK and Europe to emerging markets –  this shows pretty starkly a fading link between U.S. companies and the U.S. economy. It also shows declining cross-market correlations – a tough one for global investors looking to diversify globally and manage risk.










This map shows institutional risk across countries – corruption is a real risk and companies that are increasingly operating globally and moving sales and in some cases operations outside the markets in which they are listed.



You can read the article and access the charts here.

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Daniel Galvao

Great share Caroline, thanks. Adding to this idea of country risk, there are also foreign companies operating in multiple jurisdictions and listed in the US and/or Canada. The corruption scandal and share drop of Petrobras (PBR at NYSE) is just one example of how hard is for investors to measure operational risk in their portfolios.

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