Where Would You Invest Your Money?

A simple quali-quantitive analysis.
Published on January 18, 2015
Disclaimer
All the financial recommendations offered are
for educational purposes only.

I decline any responsibility for eventual losses you
may incur implementing all or part of the ideas
contained in this work.
I am NOT authorized to give investment advice.
The price, value of and income from any of the
securities or financial instruments mentioned in this
report can fall as well as rise.
Author may be contacted at lello.pacella (at) yahoo.it
What makes a country an attractive candidate

for investment?
You are probably thinking about variables like:
High real GDP growth
Low debt to GDP ratio
Country risk (corruption or trasparency index)
Competitivity
Low inflation
High positive trade balance account
First model
Inflation rate: the more the value is near 1,8% the
higher the score attached

Ease of doing business: the higher the ranking the
higher to score assigned
Current account: the higher the value, the higher is the
score attached.
The scores coming from each factor are summed up to
determine a final score.
Top 10
Country Name
Doing
Inflation Current acct Business
Score by
Inflation
Score by
Current
Account
Score by
Doing
Business
Final Score
Singapore
2,4%
18,31%
107
138
140
525
Norway
2,1%
11,20%
121
133
135
524
Germany
1,5%
6,86%
14
125
128
127
507
South Korea
1,3%
6,12%
112
122
136
506
Denmark
0,8%
7,12%
84
129
137
487
Austria
2,0%
2,63%
21
130
113
121
485
Malaysia
2,1%
3,75%
18
124
114
123
484
Finland
1,5%
-0,92%
123
91
132
478
Netherlands
2,5%
10,20%
27
102
132
117
468
United States
1,5%
-2,39%
120
79
134
467
New Zealand
1,3%
-3,19%
111
75
139
464
Macao SAR, China
5,5%
40,12%
40
141
141
463
Ireland
0,5%
6,22%
13
77
124
128
457
Bottom 10
Country
Name
Score by
Inflation
Score by
Current
Account
Score by
Doing
Business
Final Score
Inflation
Current acct
Doing
Business
Italy
1,22%
0,97%
56
108
102
89
388
Mexico
3,81%
-2,08%
39
63
80
105
353
China
2,63%
1,98%
90
96
109
57
319
Greece
-0,92%
0,58%
61
49
97
84
314
Russia
6,76%
1,63%
62
26
106
83
298
Vietnam
6,59%
5,53%
78
28
119
68
283
Turkey
7,49%
-7,92%
55
20
39
90
239
Indonesia
6,41%
-3,35%
114
29
70
39
177
Brazil
6,20%
-3,61%
120
31
68
33
165
India
10,91%
-2,62%
142
78
20
124
They are not really the last 10 countries. I selected the worst 10 countries among
those which are investable markets. I guess you already discarded the idea to
invest in Afghanistan, Liberia, Guinea
Second model
Same variables of the first model
+
Trailing PE multiple: the lower the better
Scores attached to PE have a weight equal to 2 when
computing the final score.
PE multiples are taken from Finviz.com
# of countries under analysis reduces because of scarse
availability of PE ratios
Top 10
Country
Name
Current
Doing
Inflation Account Business
PE
Score by
Inflation
Score by
Current
Account
Score by
Doing
Business
Score by
PE
Final
Score
Norway
2,13%
11,20%
9,85
35
39
37
39
189
South Korea
1,31%
6,12%
13,3
32
33
38
30
163
Austria
2,00%
2,63%
21
10,46
39
29
28
36
168
Colombia
2,02%
-3,24%
34
8,71
38
13
23
40
154
Netherlands
2,50%
10,20%
27
14,81
27
38
27
29
150
Australia
2,45%
-3,18%
10
10,46
29
15
34
36
150
Israel
1,53%
2,37%
40
15,41
37
28
20
27
139
Hong Kong
4,35%
1,86%
12,26
26
40
32
138
Luxembourg
1,73%
5,26%
59
15,81
40
31
12
26
135
United States
1,46%
-2,39%
20,4
34
17
36
16
119
Chile
1,79%
-3,42%
41
16,1
41
11
19
25
121
Spain
1,41%
0,77%
33
16,84
33
23
24
22
124
Japan
0,36%
0,69%
29
12,47
15
22
26
31
125
Bottom 10
Country
Name
Score by
Current
Account
Score by
Doing
Business
Inflation
Current
acct
Doing
Business
PE
Score by
Inflation
Score by
PE
Final Score
Sweden
0,0%
5,96%
11
23,94
12
32
33
95
Philippines
3,0%
3,82%
95
18,89
19
30
18
93
Belgium
1,1%
-1,84%
42
21,16
28
19
18
13
91
Peru
2,8%
-4,51%
35
18,25
22
22
19
89
Brazil
6,2%
-3,61%
120
11,47
10
35
88
Italy
1,2%
0,97%
56
25,95
31
24
14
83
Mexico
3,8%
-2,08%
39
24,48
11
18
21
66
Indonesia
6,4%
-3,35%
114
19,53
12
16
53
India
10,9%
-2,62%
142
19,53
16
16
51
Greece
-0,9%
0,58%
61
27,37
21
11
47
Third model
Same variables of the second model
+
Real GDP growth forecast for 2014 and 2015 made by
IMF (World Economic Outlook, Oct 2014)
Top 10
Country
Name
Score by Score by
Score by Current Doing Score by Score by Final
Real GDP Inflation Account Business
PE
Real GDP Score
Inflation
CA
Doing
Business
South Korea
1,3%
6,1%
13,3
4,1%
32
33
38
30
33
267
Norway
2,1%
11,2%
9,85
1,9%
35
39
37
39
18
262
Hong Kong
4,4%
1,9%
12,26
5,7%
26
40
32
37
252
Colombia
2,0%
-3,2%
34
8,71
4,7%
38
13
23
40
35
247
Australia
2,4%
-3,2%
10
10,46
3,0%
29
15
34
36
29
242
Austria
2,0%
2,6%
21
10,46
1,6%
39
29
28
36
12
220
Israel
1,5%
2,4%
40
15,41
2,7%
37
28
20
27
27
213
China
2,6%
2,0%
90
15,25
7,3%
25
27
28
41
208
Singapore
2,4%
18,3%
36,06
2,7%
30
41
41
25
205
UK
2,6%
-4,3%
18,16
2,9%
26
35
21
28
203
Panama
4,0%
-11,5%
52
10,43
6,5%
16
38
40
200
United States 1,5%
-2,4%
20,4
2,1%
34
17
36
16
21
197
Netherlands
10,2%
27
14,81
1,2%
27
38
27
29
191
2,5%
PE
Bottom 10
Country
Name
Current Doing
PE
Score by Score by
Real GDP Inflation Account Business
PE
Real GDP Score
South Africa
3,3%
-5,8%
43
12,14
1,9%
14
17
33
16
152
France
0,9%
-1,4%
31
16,35
0,3%
23
20
25
24
149
Mexico
3,8%
-2,1%
39
24,48
3,0%
11
18
21
30
147
Russia
6,8%
1,6%
62
8,13
0,4%
25
10
41
140
Indonesia
6,4%
-3,4%
114
19,53
5,4%
12
16
36
130
Ireland
0,5%
6,2%
13
27,15
-0,9%
18
34
32
130
Belgium
1,1%
-1,8%
42
21,16
1,3%
28
19
18
13
10
129
India
10,9%
-2,6%
142
19,53
6,0%
16
16
38
128
Greece
-0,9%
0,6%
61
27,37
2,6%
21
11
24
106
Brazil
6,2%
-3,6%
120
11,47
0,9%
10
35
103
Italy
1,2%
1,0%
56
25,95
0,3%
31
24
14
103
Attractiveness Map
Countries ranked from the most attractive for investment (in green) to the least attractive (in red).
PE / real GDP value map
Best countries where to

invest are on the right down
corner. They have a high real
GDP growth as well as a low
PE ratio.
Keep in mind that you are
ignoring other variables like
trade balance account,
inflation, ease of doing
business.
Among the investable
countries, Australia, China
and South Korea appear to
be cheap bargains.
Ireland, Italy and Germany
may be good countries to
short.
What must we conclude?

Country
Name
Current Doing
PE
Score by Score by
Among
countries,
onlyGDP
China
Real GDP Inflation
AccountBRIC
Business
PE
Real
Score
remains a good candidate for

6
17
33
16
investment.
South Africa
3,3%
-5,8%
43
12,14
1,9%
14
France
0,9%
-1,4%
31
16,35
0,3%
23
Mexico
3,8%
-2,1%
39
24,48
3,0%
11Also MTIK
18
21
8
30
147
countries
(sometimes
Russia
6,8%
1,6%
62
8,13
0,4%
Indonesia
6,4%
-3,4%
114
19,53
5,4%
Ireland
0,5%
6,2%
13
27,15
-0,9%
3
25
10
41 BRIC)
5 are140
called
second
generation
disappointing,
with
only exception
4
12
5 the 16
36
130
18
34 of South
32 Korea.
6
1
130
Belgium
1,1%
-1,8%
42
21,16
1,3%
India
10,9%
-2,6%
142
19,53
6,0%
Greece
-0,9%
0,6%
61
27,37
2,6%
Brazil
6,2%
-3,6%
120
11,47
Italy
1,2%
1,0%
56
25,95
20
25
24
152
149
28
19
18
13
10
129
0,9%
10
35
103
0,3%
31
24
14
103
Euro countries (except for France)

2
16
1
16
38
128
have a bad ranking primarily for their
7
21
11
4
24
106
too high
valuation

Country
Name
Score by Score by
Developed
the
top Score
part
Real GDP Inflation
Accountcountries
Business dominate
PE
Real
GDP
Inflation
CA
Doing
Business
South Korea
1,3%
6,1%
13,3
4,1%
Norway
2,1%
11,2%
9,85
1,9%
Hong Kong
4,4%
1,9%
12,26
5,7%
Colombia
2,0%
-3,2%
34
8,71
4,7%
Australia
2,4%
-3,2%
10
10,46
3,0%
Austria
2,0%
2,6%
21
10,46
Israel
1,5%
2,4%
40
China
2,6%
2,0%
Singapore
2,4%
UK
Panama
PE
of the ranking.
32
33
38
33
33
273
1,6%
Presence of Colombia is really mind35

39
37
39
18
262
blowing. It is driven by a good rate of
8 inflation,
26 low valuations,
40
31 interesting
37
250
GDP
38 growth
13and a position
23
40
247
in Doing35Business
29ranking15which is
34not that
36 bad for
29emerging
242
39
29
28country.
36
12
220
15,41
2,7%
37
28
20
26
27
211
90
15,25
7,3%
25
18,3%
36,06
2,7%
2,6%
-4,3%
18,16
2,9%
4,0%
-11,5%
52
10,43
6,5%
United States 1,5%
-2,4%
20,4
2,1%
Netherlands
10,2%
27
14,81
1,2%
2,5%
Panama
has9low valuations
and an 206
27
27
41
outstanding GDP growth rate, which
34
17
36
20
21
205
comes together with a very negative trade
30
41
41
1
25
205
balance.
26
9
35
20
28
201
3
16Colombia
38
Panama
and
are40clearly200
41outliers,
11 we will
19 explain
27 this25later on.
194

It would have been nice to have other variables, for
instance, a trasparency index and the debt to GDP ratio.
The inclusion of a trasparency indicator would have
probably pushed Colombia and Panama down in the

ranking. Their presence in the top part of ranking is really
odd and it may be explained by the fact that the model
do not consider elements like corruption/trasparency
degree. To know more about this: Corruption Perception
Index
Most important: emerging markets are a scam. With
the exception of South Korea and China, EM countries
are a lethal combination of high PE + low real GDP
growth.
Some criticisms
At the end of day, it is still a backword-looking
model, the only forward-looking variable is

forecasted GDP growth rate.
Data snooping: many countries are out of the
analysis simply because data for PE ratio are not

available
Analysis of data is very naive (no ARIMA, Markov
Switching, VAR, etc), however the ranking criterion

is actually used in asset mgmt industry
(CITI_Stock_Market_Country_Selection.pdf)

Considering the figures on the table, I would say...
Strong sell
Italy and Ireland.
Sell
Belgium, France, Greece, Brasil, Russia,

India, Mexico, Indonesia, Turkey
Buy
USA, UK, Austria, Norway, Netherlands
Strong buy
But wait a minute.
China, South Korea, Australia
A little bit of qualitative analysis

Recents events (drop of oil price + devaluation of
Euro) may change the scenario.

Countries which have the euro and are big exporters
may become more interesting than what the model

is telling us (Germany, Netherlands, Austria).
Countries outside the Euro area which are oil
producers (USA, UK, Norway) may be penalized

from the above mentioned macro scenario.
Trading signals
Considering the thoughts of the previous slide, I
would bet:
Long on: China, South Korea, Australia, Netherland,
Austria
Short on: Italy, Ireland.
Thank you!
Waiting for your comments at
lello.pacella (at) yahoo.it
More about me: Linkedin profile

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A simple quali-quantitive analysis.

Published on January 18, 2015

for educational purposes only.

What makes a country an attractive candidate

higher the score attached

Macao SAR, China

United States 1,5%

PE / real GDP value map

Best countries where to

What must we conclude?

remains a good candidate for

Euro countries (except for France)

What must we conclude?

Presence of Colombia is really mind35

United States 1,5%

What must we conclude?

instance, a trasparency index and the debt to GDP ratio.

The inclusion of a trasparency indicator would have

probably pushed Colombia and Panama down in the

model, the only forward-looking variable is

analysis simply because data for PE ratio are not

Switching, VAR, etc), however the ranking criterion

What must we conclude?

Italy and Ireland.

Belgium, France, Greece, Brasil, Russia,

USA, UK, Austria, Norway, Netherlands

China, South Korea, Australia

A little bit of qualitative analysis

Euro) may change the scenario.

may become more interesting than what the model

producers (USA, UK, Norway) may be penalized

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