Canadian Investment Review

Charts of the Day: The Demise of Global Diversification

Written by Caroline Cakebread on Thursday, July 13th, 2017 at 12:18 pm

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.

spgeographicbreakdown

 

 

 

 

 

 

 

 

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.

45117

 

You can read the article and access the charts here.

Copyright 2017. Canadian Investment Review. All Rights Reserved.