Aswath Damodaran, professor of Finance at the Stern School of Business at New York University, together with Visual Capitalist created a map of investment risk in different countries. An entirely rosy picture does not emerge for Italy: it appears to be far in the rankings from the major European economies, as well as from the G7 countries. “Botswana, Bulgaria and Mexico do better. A position that should really make Italian governments reflect,” says investor Giovanna Voltolina
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Which countries have the highest investment risk, in an ever-changing geopolitical context? Aswath Damodaran, professor of Finance at the Stern School of Business at New York University, tries to answer this question: together with Visual Capitalist he created the “Country Risk Map”, a map of risk in different countries. For Italy, a completely rosy picture does not emerge: with a 3.3% “risk coefficient”, although it still falls within an exposure limit threshold for investors (on a 0-25% scale), it appears to be far in the rankings from the major European economies, as well as from the G7 countries.
The “Country Risk Map”
The “Country Risk Map” classifies all the economies of the world mainly based on 3 risk factors: the first is the “Political Risk”, which takes into consideration the type of regime, the level of stability and government corruption; then there is the “Legal Risk”, which evaluates the protection and application of property and contractual rights; the third is “Economic Structure”, i.e. the level of diversification of the economy. Furthermore, the experts also analyzed the “Default Risk”, i.e. the ability of a nation to repay the public debt: this is a parameter that the financial markets take very much into account and which can create turbulence on the markets. All these factors, together with others, form the “Country Risk”: the investment risk coefficient for each country. The United States was used as a basis for measuring the risk of other states.
Looking at the ranking, updated in July 2023, there are 13 countries that can boast of the 0.0% risk (resulting from indicators such as AAA-rated government bonds, low corruption and strong protection of property rights): they are the USA , Switzerland, Sweden, the Netherlands, Germany, Canada, Liechtenstein, New Zealand, Norway, Singapore, Luxembourg, Australia and Denmark. The economies of Austria and Finland follow (0.6%). To give other examples, we find France at 0.8%; United Kingdom, Ireland and Belgium at 0.9%; Japan at 1.1%; Spain at 2.4%. The countries with the highest risk coefficient are Venezuela, Belarus, Lebanon, Syria and Sudan, at 24.8%.
The position of Italy
Italy has an investment risk coefficient of 3.3%, high compared to the major European economies and the G7 countries. “To find Italy you have to scroll down the ranking to the lower part and beyond the 3.3% risk coefficient, where the Bel Paese is accompanied by economies such as Mauritius, Montserrat (Lesser Antilles), Romania and India. Botswana (1.8%), Bulgaria (2.4%) and Mexico (2.9%) do better,” says Giovanna Voltolina, international mid-cap investor. “A position – adds the investor – that should really make Italian governments reflect, where you talk about an economy weighed down and significantly burdened by factors that should instead be the first facilitators and allies of company development. And, moreover, it is a condition that discourages and keeps away international investors, who would willingly invest a lot of capital in our SMEs and in our Made in Italy but who, classification or not, already independently perceive the risk of pouring capital, and there would be many of them, for the development of Italian companies”. “But unfortunately abroad we are famous for a complex and too ‘interpretable’ legal system, a judicial system that remains one of the slowest in Europe, as well as one with a bureaucracy and economic, national and regional policies, distorted with every change of government”, concludes Voltolina.