The assessment of country risk, for both emerging/transitional markets and countries with developed and industrialised economies, requires a careful and structured consideration of both qualitative and quantitative factors. Recent experience in the Eurozone has shown that the default risk of even developed markets needs a more rigorous approach than it has hitherto often been accorded: evolving trends in ‘bail-in’ principles from the supranational agencies are among the many factors that need to be incorporated in the analysis. And in emerging markets, the indications in 2013 of the long-awaited ‘tapering’ in the US Federal Reserves quantitative easing policies have already significantly disturbed the course of these countries’ economies and the perceptions of their financial strength.
Our practice offers two services:
Advisory – analysis, process and methodology, internal ratings systems
We advise companies, including banks, insurance companies, and government agencies such as export credit suppliers, on country risk assessment and metrics. We are brought in to review internal risk rating methodologies, and to advise on portfolio strategizing.
At a time when many of the simplistic assumptions of sovereign and country risk are being turned upside-down, both in Europe and in what are increasingly less appropriately termed ’emerging’ markets, radical reassessments of the issues are needed, especially as interest rates begin to rise, and – as many assume – we embark on a period of higher incidence of country defaults.
Training and education in risk analytics
Country risk is an analytical discipline frequently entrusted to professional academic economists. While an academic training in the ‘dismal science’ (Thomas Carlyle’s description) is valuable, this needs to be teamed with an appreciation of markets and their behaviour, as well as an understanding of the importance of internal qualitative factors, other vital dynamics in the local financial system, and the exchange rate policy. Finally, international support issues are often of great significance, and these have become particularly volatile in recent years with evidence of new policies from both the European Union and the IMF.
We undertake training courses for credit and risk analysis professionals looking to develop their skills in sovereign and country analysis. Our courses are from 2 to 4 days, and the agenda typically includes:
• Interpreting macroeconomic and other quantitative data;
• Integrating qualitative risk factors into the risk assessment;
• Why banking and financial systems are an essential ingredient in the analysis;
• Appreciating how the ratings agencies, and other practitioners in the markets, assess and price risk;
• Understanding the circumstances and factors that drive country defaults;
• Comparing the risk analysis of emerging countries with that of developed markets;
• Assessing the risks in sub-sovereign counterparties and borrowers;
• New developments in the ‘sovereign ceiling’ concept: the relationship the risk of a country’s default with that of other companies and banks in that country.
Our courses are interactive, with a mix of presentations, case studies drawn from a wide range of recent precedents from around the world, interspersed by practical analysis assignments for the group.