2018 Around the World: a Survey of Key Country Risks

Key points

  • Strong synchronized global growth has led to a drop in intercountry correlations and made risks in individual countries more important than ever for investors.
  • We survey key risks around the globe, including trade policy, elections, geopolitical tensions and reform efforts.
  • Our preferred countries include Japan, Brazil, India, Indonesia, and China.


The benign global economic backdrop has elevated the importance of country risks for investors, driving down intercountry correlations (see Figure 1) and increasing potential opportunities. Country differentiation will matter in 2018, as each country faces a unique set of risks. Naturally, investing in only some of these countries may be worth the risks. Against that backdrop, we survey what we believe are dominant country risks to monitor in 2018, broken down by regions.

Figure 1: Intercountry correlations at decade lows

Figure 1: Intercountry correlations at decade lows

Source: Thomson Reuters. As of January 2, 2018. Six month rolling average intercountry correlation of all 47 countries in the MSCI All Country World Index. Returns are measured in local currency.

Americas: It’s all political

  • NAFTA. Trade is a key geopolitical risk for 2018, particularly with respect to the NAFTA negotiations. Canadian assets have weathered the uncertainty better than Mexican assets, although local Mexican equities have fared better than expected. The peso has weakened considerably and led to faster inflation and forced tighter monetary policy. With two key elections ahead -- the July 1st Mexican presidential election and U.S. midterms in November -- negotiations may intensify in coming weeks, particularly the March round of negotiations, as the negotiating parties increasingly play to domestic audiences.
  • Brazil. The key for Brazil is whether they can pass pension reform. The Temer administration has already passed a number of reforms, including a 20-year constitutional spending cap tied to inflation, which has lifted the economy out of a deep recession and regained investor confidence. The October presidential elections add another source of uncertainty, which could complicate the necessary fiscal reforms. With economic and earnings growth accelerating and critical catalysts on the horizon, Brazil warrants close attention this year.