The Safest Countries in the World.
by Natalie Pace.
June 25, 2012
A few years ago, pigs were just farm animals. Today, PIIGS are European nations that no one wants to lend money to (namely Portugal, Ireland, Italy, Greece and Spain). Their debt has a stench, which keeps investors at bay, forcing these countries to borrow money at interest rates that only make the problem worse. The only solution is austerity -- high taxes -- combined with economic growth, both of which are impossible to achieve in places, like Spain, where the unemployment rate is as high as 24.3% (and 51% for young adults under 25).
Greece was on the brink of default just a week ago. Ireland, Italy and Spain are sliding dangerously close to speculative status; Portugal is already there. The euro, which competes with the dollar in the world capital markets, would collapse without the strength of Germany, the Netherlands, Finland, Luxembourg and France shoring it up.
MF Global, an American broker-dealer with too many investments in Greek bonds, became the 8th largest bankruptcy in history on Halloween 2011. That bankruptcy and the bond crisis of PIIGS nations are red alerts that you can no longer consider bonds to be safe across the board.
So, when you think of how to get safe -- how to protect your 401k, IRA, annuity and pension from the Eurozone crisis (really the developed world crisis) and the fate of MF Global -- one of the top considerations is debt. In my debt analysis below, I've also lined up each country's freedom ranking (which assesses everything from property rights to corruption and beyond) and Standard and Poor's foreign currency rating. The result is a list of 11 countries that stand out as the safest areas of investment opportunity in the world. A few of those countries are also paying the highest yield.
The countries that I've bold and blue highlighted below are mostly free, have less than 50% debt to GDP ratio and a double or triple A sovereign rating by Standard and Poor's. These countries are namely Estonia, Quatar, Hong Kong, Luxembourg, Australia, New Zealand, Taiwan, Sweden, Denmark and Finland. I've also highlighted Chile because it is, currently, one of the most free countries in the world, with the lowest debt, and is rich in the natural resources that the rest of the world craves. Having said that, South American countries, like Chile, suffer from political instability, which is reflected in the country's Standard and Poor's credit rating of A+.
Kuwait and Saudi Arabia have very low debt, but are not very business or investor friendly. World leaders, like the U.K., U.S., Germany and Canada, are free, stable economies with great credit ratings, but have debt to GDP ratios that are as high as Spain's. (That doesn't mean you don't want to invest in these great, free countries, particularly in some of the solid companies that are located in them. But it does mean that sovereign bonds are more vulnerable, low-yielding and at risk of becoming devalued, due to the high debt and accompanying credit risk of these sovereigns, than you might realize.)
Debt & Freedom by Country
*on Negative Watch
The U.S. data exclude debt issued by individual US states, as well as intra-governmental debt; intra-governmental debt consists of Treasury borrowings from surpluses in the trusts for Federal Social Security, Federal Employees, Hospital Insurance (Medicare and Medicaid), Disability and Unemployment, and several other smaller trusts; if data for intra-government debt were added, "Gross Debt" would increase by about one-third of GDP.
The risk in the Middle East isn't that they can't pay you back, but that they won't. The funds might be seized by a megalomaniacal dictator or radical/revolutionary forces. The risk in the developed world is that they are promising to pay everybody back and some people, including pensioners, are going to get shortchanged. (Be sure to read this ezine cover to cover to make sure that your muni bonds, and other "safe" assets, are as safe as you have been led to believe.) Too many promises of payment and too little money to go around are at the heart of the problems in all of the developed world, and most acutely in PIIGS.
Excessive Debt in PIIGS Nations
So, how do you invest in safer securities from Estonia, Qatar, Chile, Hong Kong, Luxembourg, Australia, New Zealand, Taiwan, Sweden, Denmark and Finland? It's easier than you might think -- at least in two of these countries -- thanks to fund companies, like Pimco and Wisdom Tree.
Bond Funds Based in Australia and New Zealand
Australia and New Zealand are both paying very high yields, relative to the rest of the world. Even personal savings accounts are offering almost 5%. (Last year, when I first began singing Australia's praises, the yields were 6%.)
Pimco is one of the largest, most established investment management firms in the world, with over $1.77 trillion in assets under management. It has been in business for four decades. WisdomTree is a publicly traded investment company, which was founded in 2006. WisdomTree's current market value is $810.58 million, with $15.7 billion in assets under management as of March 31, 2012. So, if you want an extra layer of security, go with Pimco.
Opportunities in Low Debt Countries
Having said that; be sure to add these MSCI Index funds at a good price and don't go overboard with your investments. Since the MF Global bankruptcy, you can't be too careful about the financial services company you choose. Although MSCI has been in business for 40 years, the company just let go of their CFO, which is always a red flag -- particularly when the new CFO oversaw the Merrill Lynch acquisition for Bank of America (meaning he knows how to fold troubled companies into bailed out banks). There are only a few reasons why a 51-year-old CFO bringing in $660,000/year will give up the stable job -- illness, another opportunity, because he refuses to sign off on the books or he's forced out. Time will tell whether or not MSCI's current CFO David Obstler was wooed away to a better job. (The company is using the old line that he is leaving to "pursue other interests," which is a corporate veil designed to hide the truth.) MSCI CEO Henry A. Fernandez is a Morgan Stanley lifer.
For guidance and additional information and news, check out my Hot News on Cool Stocks Report, which is updated twice a month. All of the funds listed below are MSCI index funds.
Another good policy is to diversify a chunk of your "paper assets" (i.e. stocks, bonds, Treasury bills and savings) into low-risk, yielding hard assets that you purchase for a good price. I spend an entire day educating my retreat attendees on safe, good-yielding hard assets, which should hold their value more than paper assets in the coming years. Call 310-430-2397, if you are interested in learning more about my 3-day, boardroom, Investor Educational Retreats.
About Natalie Pace:
Please note: NataliePace.com does not act or operate like a broker. We report on financial news, and are one of the most trusted independently owned and operated financial news corporations in North America. This article is intended to educate and inform individual investors, and, thus, to give investors a competitive edge in their personal decision-making. The publicly traded companies mentioned in this article are not intended to be buy or sell recommendations.
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