When looking around the world and at the state of various economies it quickly becomes apparent that some sovereign debt is more risky than others.

So, how does the investor get an idea of which is the best to invest in?

Well, BlackRock’s quarterly report (https://www2.blackrock.com/webcore/litService/search/getDocument.seam?venue=PUB_IND&source=GLOBAL&contentId=1111157859) into the sovereign debt of 44 countries draws on quantitative financial data, as well as more qualitative data from surveys and political insights then ranks the countries for you.

The BlackRock Sovereign Risk Index (BSRI) does come with a health warning on its first page though due to the irregularity of the data collection and it does say it is not a forecasting vehicle.

During the last quarter of 2011 the biggest risers on the BSRI were Japan (up five places) with China, Peru and Poland all moving up three places. Japan benefitted from the view that its government had improved its ‘stability and effectiveness’, as had Poland.

The fallers were led by Thailand (down six places), whose drop was triggered by severe flooding causing ‘deterioration across the board’. France fell four places due to a ‘worsening investor climate and political risk’. South Africa also fell three places due to its widening primary budget deficit.

The UK is mid rank in 23rd.

Countries are ranked in order of sovereign debt as follows:

1 Norway
2 Switzerland
3 Sweden
4 Finland
5 Canada
6 Chile
7 South Korea
8 Australia
9 Denmark
10 Germany
11 Netherlands
12 New Zealand
13 USA
14 Austria
15 China
16 Malaysia
17 Russia
18 Peru
19 Czech Republic
20 Israel
21 Thailand
22 Poland
23 UK
24 Philippines
25 Indonesia
26 Belgium
27 France
28 Brazil
29 Japan
30 Colombia
31 Croatia
32 Mexico
33 Turkey
34 South Africa
35 India
36 Spain
37 Argentina
38 Hungary
39 Italy
40 Ireland
41 Venezuela
42 Egypt
43 Portugal
44 Greece

The final BSRI ranking is derived from four categories: Fiscal space (GDP, debt, tax, demographic and dependency ratios), willingness to pay (government’s effectiveness, stability and lack of corruption), external finance (current account balance and exposure to foreign debt) and financial sector health (banking sector strength and credit bubble formation risk).

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