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Socio-Economics Put China at Higher Investment Risk Than The U.S.
By EconMatters
This week has turned out to be Wall Street's wildest week since 2008. The Dow Jones industrial average closed down 519 points on Tuesday, Aug. 10, but then went up 423.37 points. But overall, Down has now lost more than 2,000, or 16% since July 21, less than three weeks ago. The selloff intensified after the U.S. got stripped of the top notch AAA rating by S&P first time ever in history.
The double AA status has put the U.S. in the same category as China, based on S&P's rating. But one consolation for the United States is that the country's high socio-economic resilience has placed the U.S. at a more favorable investment risk position than major emerging economies like China and India. Socio-economic Resilience Index is a risk metric developed by risk analysis firm Maplecroft measuring the ability of countries to cope with the impacts of a major event.
It is interesting that although some of the developed countries and emerging economies, while all subject to economic exposure to natural disasters, it is the socio-economic resilience that sets these countries apart when it comes to the overall risk to investors.
Based on another risk metric - Natural Hazards Risk Atlas 2011 (NRHA)--from Maplecroft, out of 196 countries, USA (1), followed by Japan (2), China (3) and Taiwan (4) are the only four countries rated as "extreme risk" to economic exposure to natural hazards such as floods, hurricanes, earthquakes. The large emerging economies of Mexico (5), India (6), Philippines (7), Turkey (8) and Indonesia (9), and two developed countries--Italy (10) and Canada (11) are the remaining to be rated as ‘high risk’.(See Map)
However, in the Socio-economic Resilience category, most developed countries such as the US and Japan are rated as ‘low risk’, whereas some hot growth emerging economies like China, India, the Philippines, Indonesia, Pakistan, Bangladesh, and Iran are all rated as 'high risk’.
According to Maplecroft, while the large developed economies of the US and Japan have the greatest economic exposure to major natural hazards, they also have the capacity and readiness to weather impacts from major disasters. That includes: economic strength, infrastructures, disaster contingency plans, as well as tight building standards, etc.
Many of the emerging economies rated with high socio-economic risk have attracted high FDI (Foreign Direct Investment) inflow in recent years with their rapid growth. The rising economic power of the major emerging economies like China and India, and their lack of resources to respond to major events means the occurrence of a major disaster in these countries may also have global economic impacts and severely affect the global supply chain.
For instance, the severe drought in China earlier this year threatened global wheat crop production and prompted the U.N. food agency to issue warning due to the impact of China’s drought on global food prices and supplies.
Companies deriving a large portion of revenues from emerging Asian countries, although may have enjoyed higher growth in recent year, are at the same time subject to a greater risk of business disruptions than their more domestic-centric competitors. Nevertheless, just as each country differentiates itself in its capability to respond and withstand major events / disasters, how each company executes its disaster response and business continuity plans may also serve as a differentiator within the pack.
For example, some companies like Apple were able to move quickly to secure their supply chain after the Japan quake, whereas others had to cut or halt production, powerless to respond to lost business and market share.
This also means investors, who are currently diversifying portfolios into Asian countries, need to also factor in natural hazards risks in to their investment strategies. Bloomberg quoted an EPFR Global report that emerging-market equity mutual funds had more than $7 billion of withdrawals in the week ended Aug. 10, the most since the third week of 2008.
Emerging economies have been all the rage and buzz in recent years partly on stagnant growth in the OECD countries. But in times of uncertainty like we have now, investors tend to put stability above other considerations. Right now, the U.S. still offers relatively stable outlook (albeit with a gloomy near-term GDP growth projection) than most of other regions in the world.
So the risk factors discussed here probably already are playing an implicit role, particularly in the wake of Japan's mega earthquake and the resulted tsunami's, in the recent stock performance of MSCI emerging markets index vs. the S&P 500 (see chart above).
Further Reading:
Top 8 Cities by GDP: China vs. The U.S.
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New Zealand is where I have chosen...great little country
1,200% Leverage on the Renminbi before the ink dries.
120% Leverage on the U.S. dollar before the ink dries...
that map sucks. one reason it's stupid is that mapping natural hazard risk is just retarded plain and simple.
proof? every place that gets hit by floods is frequently a place no insurer will cover for floods. even people in the business of insuring against these risks cannot predict this stuff, so some 2 bit consultant has a 4 color map i will trust? please.
The Buffet said
lol the buffet part of the fraud ,, why listen
may as well ring the pavlovian bell and stoop over a gruel bowl
buffet has seen his last days .. part of the big problem
more blovin excretment from long tedious insight into nothing
EconMatters
willie
the real happenings
A well connected contact from the banking world with intimate familiarity with many background events offered an opinion last week in response to the rapid rise in turmoil.
He is privy to numerous activities of hidden variety. In recent weeks his tone has changed, to indicate a profound perception of the United States having entered a dark chapter with almost no chance of recuperation. He mentions how executives in foreign lands are bracing to protect themselves from a certain US shock wave, as many regard the US as a rogue nation.
Many foreign corporate heads consider the US\\ even a failed state. He has cited several stages of deterioration leading to a certain collapse. Public awareness seems to be growing that the US has no structural mechanisms to treat or remedy its flaws and fractures. The nation is strangled by its large banks. The political apparatus is totally broken. Its imbalances worsen by the month. The fraud persists in many corners without restraint. He
In reading this article I have to wonder what the motivation and or real message? Is it to try to convince me that the debt downgrade is OK because we have a higher grade in Socio-economic Resilience? Is the article to suggest that S&P should have used this horseshit when evaluating our credit worthiness? Is it to mean that China should be downgraded? Or, is it just more liberal nonsense that is feel good about America while we are declining in education, employment, GDP, ......you name it and we are falling!
It is wonderful that we can and have been so generous but it is equally important to understand that we are generous with printed paper we never earned. This whole article is utter BS, we are in decline, we need to get our house in order and we need to pay our bills and reduce Washington DC to what it was meant to be, ……the people house. Sound money, limited government, balanced budget and end entitlements after you get out what you paid in. Let families take on the responsibility of the elderly and sick, this is not our responsibility, it is theirs.
Sound money is where this all starts and nothing in this article matters without it.
Having lived in Europe for five years, the far east in various countries for 7 years and the middle east for one and a half years, the USA is by far the most resilient and most generous. We help our neighbors after disasters, we band together to actually rebuff the looters after a tornadoe. Life in most countries does not mean squat. We may be bad and immoral in alot of people's eyes including some here. I have witnessed many disasters and I am still amazed at how we will pick ourselves up out of the ashes and help one another to rebuild. Of couse there are exceptions to this like New Orleans, but even then alot of us went down there to help. We may have been told we were not alllowed to help but we showed up.
Partner, I am with you. I lived in Eastern Europe for 3 years and latin America for 5 and there is no place like the USA but, that is not the issue.
Hmm.. I wonder if they have a risk metric or prognosis for a long duration Carrington (CME) event.
http://science.nasa.gov/science-news/science-at-nasa/2008/06may_carringtonflare/
china has severe socioeconomic risk because the western powers will make sure that it suffers from it. destabilizing china is at the top of the agenda of the western powers because of the mathematical certainty that china will, once again, be the economic ruler of the world, a position it has held since before europe civilized until the 1800s.
china has not shown that it is willing to play the subservient partner role to western(usa) dominion so it has sealed it's fate. saying no to banksters is dangerous to your health.
Lots of underreported riots in China, over wages, working conditions, food prices, etc. Almost 200,000 so far this year. Should give everyone pause.
They sure do have alot of cash on hand and good leadership up to this point. Even The Buffet said "China is an economic miracle" the same time he said "the US recession will be long and painful."
If you want to get blown up by a bomb live in Bengladesh or Indonesia. If you want to get blown up by a quake or hurricane, live in USA or Japan.
China is ripe for both. So according to this report go long Zimbabwe! Its a paradise!
Great, but I am not gonna trade that
Please define "natural hazard" as the term is used here. My search for specificity ended at Maplecroft 'Registration' page. No, thank you.