Which Countries Offer the Highest Yield for the Lowest Risk?
In today’s global economy, it’s fairly easy for Main Street investors to choose funds that specialize in countries around the world. The benefits of country diversification include: exposure to different economies and their growth potential, mitigation (somewhat) of risk, and higher yield. Each year, we line up GDP growth expectations, debt to GDP and other factors to determine which countries offer the best risk/reward. See below for 5 countries that are ranking at the top of the pack, one that has fallen off of our radar and two that are higher risk than most of us realize.
2 Countries With More Risk Than Investors Realize: the U.S. & Canada
Since the pandemic and the aftermath of escalating inflation, almost all countries have increased their debt and are now having to raise interest rates. That can be a problem, particularly if there is a lot of corporate debt in the country. The IMF issued an alert on Jan. 31, 2023, writing, “[The] build-up of risk in the corporate sector and a doubling of funding costs for even the safest issuers could pose serious problems for many economies and their financial systems.” The U.S. was listed as #9 of the developed world countries that were at risk, behind Portugal, Norway, Greece, Spain, Iceland, New Zealand, Austria and Italy. Canada was #12 on that list. In my country analysis this year, I included financial instability risk rankings from the IMF report. (If you’d like that graph, email info@NataliePace.com with Country GDP Debt Graph in the subject line.)
It’s important to remember that we are a global economy. A ripple in the developed world can become a tidal wave in the developing world. In other words, all equity-based investments are at risk. High leverage and rising interest rates create a great deal of problems for fixed income products, too. For these reasons, we are overweighting an additional 20% safe in our sample pie charts (limiting exposure to equities) and underweighting mid- and long-term bonds. (We’ve been suggesting that Main Street investors have limited exposure to low-yielding mid- and long-term bonds for a decade now.)
You can personalize your own sample pie chart using our free web apps. Email info@nataliePace.com with FREE WEB APPS in the subject line.
Fixed income investors are finally being rewarded for their risk, but navigating between the new opportunities and the legacy debt (which is plummeting in value) is tricky. I address this in my 2023 Bond Strategy blog. (Click to access.)
5 Countries With Attractive Risk/Reward Scenarios
FYI: Chile is No Longer on Our Hot Country List
And here is more color on each country.
5 Countries With Interesting Risk/Reward Scenarios
The U.S. has a lot to offer investors in terms of leading multinational companies. Canada is rich in natural resources, including oil sands. I’m not suggesting that we jettison Apple, Google, Amazon and other large multi-national companies from our investing plan. These trillion-dollar companies offer a solid foundation.
For most of us, however, almost all of our exposure is in one or both of these countries, and in only very large corporations. Additionally, there is a great deal of difference between high-growth, low-debt companies, and the high-debt, slow-growth companies that are concentrated in value funds. Many U.S. large-cap growth companies are still experiencing very high valuations. Legacy value companies have a great deal of leverage. Over half of the S&P500 is at or near junk bond status. What we’re offering in this blog is a way to diversify away from the low-yielding value funds and into international equities, many of which offer double or triple the yield.
Australia is a country that is rich in natural resources. After the Great Recession, Australian equities more than doubled in value in under two years. (It took the Dow Jones Industrial Average over six years to crawl back to even.) The post-recession building boom typically puts natural resources in high demand.
While 2023 could see Australia’s economy slow to 1.9% GDP growth, if there is an economic recovery in 2024, Australian companies could soar again. In the initial stages of economic weakness, almost all international equities will go down before the decoupling occurs. The U.S. is expected to experience at least a mild recession, so stocks worldwide could be under pressure. For that reason, if we don’t already have exposure to an Australian ETF, it’s a better idea to dollar-cost average into the holding, rather than to just slam-dunk a purchase to fill up a slice of the pie chart.
In addition to the capital upside, many Australian ETFs offer a far more attractive yield than their U.S. and Canadian counterparts. As you can see in the chart below, the iShares Australian ETF (symbol: EWA) is currently offering a yield of 6.05%, compared to 2.3% in the U.S. and Canada. According to the IMF, Australia has a much lower risk of financial instability than Canada and the U.S., as well.
Ireland is benefitting from being the European tax haven for a lot of technology companies, including Google and Apple. The country was in dire straits during the Great Recession. It required IMF assistance and a bank bailout. However, since then, it has risen to having one of the highest GDP per capita in the world, at $107,000 per person, compared to $78,000 in the U.S. and $60,000 in Canada.
Ireland’s GDP growth was a whopping 14% in 2021, 9% in 2022, and is expected to be one of the highest in the world, at 4.0% in 2023. The yield on the iShares ETF (symbol: EIRL) is only 1.24%. However, this is a country that is carrying lower risk than most of the developed world. Again, if we don’t already own this ETF, it’s a better idea to dollar-cost average into the holding, rather than to just purchase the slice all at once.
Copper has been coined as “the new oil” by Goldman Sachs because the metal is essential in the transition to a new energy economy. Peru is the 2nd largest producer of copper in the world, behind Chile. The country also has some unique food/nutrition products that are desired around the world, including quinoa, camu camu, maca and cacao.
There is political unrest in Peru that could spill over and impact the economy. However, at this time, Peru is expected to have 2.6% GDP growth in 2023 and 3.2% in 2024. When copper is hot, as it was in 2021, Peru’s GDP catches fire, too. In 2021, Peru’s economy grew by almost 14%. Investors are receiving a yield of 5.46% for investing in the iShares Peru ETF (symbol: EPU).
Indonesia benefits from the growth of China, and is also energized from the higher prices of oil and gas. The country is the #1 producer of nickel – a rare metal that is central to lithium ion batteries and other clean energy products. Indonesia’s GDP is expected to grow at 5.0% in 2023.
FYI: Vietnam’s economy is predicted to grow 6.2% in 2023. It’s difficult to invest in a Vietnam-based ETF, which is why the country is not included here.
China was heavily impacted by COVID in 2022, but is expected to have a stronger 2023, with 5.0% GDP growth. The country agreed to U.S. audits of its publicly-traded companies. So, in addition to having a strong economy, investors could benefit from buying into equities that were oversold last year.
FYI: Chile is No Longer on Our Hot Country List
Chile’s GDP growth was lower than Peru’s in 2022, at 2%. The country’s GDP is projected to contract -1% in 2023. There is a higher risk of financial instability in Chile than Peru. Those are a few of the reasons why we are leaning into Peru, and away from Chile in our Hot Country analysis this year.
Adding in foreign countries can bring higher dividends, potentially higher performance, greater diversification and lower risk to our equity investments. While we aren’t suggesting that we get rid of all of our U.S. or Canadian investments, there is room in the pie for diversification by country, in addition to size and style.
Each year, we line up the numbers to identify a few countries that might offer the best risk/reward scenario. Not surprisingly, most of the countries featured here are rich in natural resources, or based in Asia.
As many developed world countries are expected to have weak GDP growth in 2023, all equity prices could be under pressure. For that reason, we’re encouraging a dollar-cost averaging approach to adding these holdings to our portfolio, and to overweighting up to 20% additional safe.
Email info @ NataliePace.com or call 310-430-2397 if you are interested in learning time-proven investing, budgeting, debt reduction, college prep and home buying solutions that will transform your life at our next Financial Freedom Retreat. We spend one full day on what's safe, helping you to protect your wealth and reduce money stress.
Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021.
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Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.
ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.