BlackRock’s latest quarterly update of the BlackRock Sovereign Risk Index (BSRI) shows key movements by Australia, China, India, Japan, New Zealand, South Africa and the US.
The BSRI provides investors with a framework for tracking sovereign credit risk in 48 countries, drawing on a pool of financial data, surveys and political insights.
Also noteworthy in this latest edition of Mapping Sovereign Risk is the newly created interactive BSRI, which allows for viewing individual country scores, comparing two countries and sorting overall rankings by index components.
Japan fell two spots in the rankings as a result of its sharply deteriorating fiscal balance – a space worth monitoring in 2013 as a new government and central bank governor settle in.
“The fiscal profile of Japan worsened enough to cause it to slip two spots to 35th place, even as its other BSRI components improved. Japan now ranks just ahead of South Africa but below the likes of Turkey, Indonesia and Slovakia,” according to the BII.
The US remained at 15th place even as it teetered on the edge of the “fiscal cliff” of automatic tax hikes and spending cuts. “The last-minute deal was better than nothing, we think, but its limited scope means more tortured budget talks – and market volatility – ahead,” BII strategists said.
China, Australia and New Zealand moved up in the rankings, with Australia jumping three spots due to an improved primary budget balance. “China rose two spots to 16th place on the back of higher government revenues as a percentage of GDP. China’s ‘Willingness to Pay score’ improved due to the relatively smooth once-a-decade leadership change,” according to the report.
India remained at 39th place, but the country’s profile improved on most fronts, according to the BII: “India’s ‘Fiscal Space’ improved on a lower debt-to-GDP level and an improving primary balance.”
Among major BSRI movements, the BII also noted that South Africa dropped two notches to 36th place: “South Africa slid two spots to 36th place mainly due to a rapidly worsening current account deficit. Anecdotal evidence has money fleeing the country at a rapid pace, and the BSRI appears to reflect this.”