According to the latest report by Citi Research, Germany tops the list of most attractive countries. The research firm said that, in September, all the countries it covers delivered a positive return in U.S. dollar terms. The five most attractive countries are Germany, Italy, South Korea, South Africa and Brazil. The worst performing countries were Mexico, Canada, Malaysia, Sweden and Japan.
Long porfolios in Germany up 7.2%
The difference in returns of the best and worst performing countries was about 12% in September. It indicates that selecting the right country while investing remains critical. Using their upgraded market-ranking model, Citi analysts found that long and short both portfolios worked well. Long portfolios in Germany yielded 7.2% return.
There has been much talk in recent years about disruption and trying to pick companies that will disrupt their industries. The debate continued at the Morningstar Investment Conference as Bill Nygren of Oakmark Funds faced off with Morgan Stanley's Dennis Lynch. Q2 2021 hedge fund letters, conferences and more Persistence Morningstar's Katie Reichart moderated the Read More
Citi Research came up with a market-ranking model in 2004 to rank 22 global markets where ETFs were available. Citi updated the model in July 2013. The figure above shows the attractiveness scores of 22 countries based on the updated model.
Assessing the attractiveness of a country
Citi Research has a 17-factor parameter to assess the attractiveness of a country. Each of these factors are assigned weightage based on the “size and strength of the relationship between a market’s rank on that factor and subsequent performance rank of the country.” And then five factors are chosen for each country.
The figure below shows the factor values used in the model:
How much a factor contributes to a specific market’s outlook? Well, that is obtained after multiplying the factor value in the figure-17 (above) with the factor weight in figure-19 (below):
Now adding up contributions of all the factors gives the final attractiveness score of a country.
At the bottom of figure-20, you can see the ranking of each country. Germany tops the list, followed by Italy and South Korea. The worst performing countries are Mexico, Canada and Malaysia, ranked, 22nd, 21st and 20th respectively.
That didn’t come as a surprise because major hedge funds such as Tiger Global, Alden Global and Cape View Capital have posted strong gains in Germany.