I wrote this article it was originally published at morganist economics.
Make Sure You Invest In The Right Country.
By Peter Morgan.
Research strategies for potential investments have many forms, however macroeconomic indicators can help to stabilise long term portfolio values in a way that most other analysis techniques simply cannot. If investors are looking to protect their life savings or accumulated pension funds the security of their entire investment portfolio is a necessity. I developed a new macroeconomic national investment analysis technique called the 'Morganist National Investment Analysis' model, which accurately predicted economic outcomes in Europe.
The research was conducted during the Euro Crisis and is evaluated in the book 'Euro Crisis - Aggregate Demand Control is European Single Currency Weakness'. The data used in the book predicted that certain countries in the European Union would fall into economic and financial difficulty, which they later did. The book also accurately predicted the United Kingdom would withdraw from the European Union, as a result of financial burdens put upon taxpayers in Britain deriving from the failing European Union member states debt defaults.
Annual government income surpluses and deficits are used in the 'Morganist National Investment Analysis' MNIA to evaluate government spending patterns. Reviewing excesses of income or increases in borrowing over a long period of time can identify the success of an economy or the need for a government to invest in its economy to stimulate growth. The model collects the net annual surpluses or deficits of government income for a nation over a set time period, the cumulated total, mean average and standard deviation are then calculated.
The minimum and maximum surplus or deficit over the time period are also shown in the model, so the extent of the change in a government's income or borrowing can be seen. If the economy is in surplus throughout the period it is seen as being strong, indicating investment in the nation would be a stabilising factor in a portfolio. A good way to diversify investment in one particular nation is to buy into the stock or share index, which holds a collective group of shares in the country's stock exchange, so corporate investment can be spread out widely.
If the outcome of the national investment analysis is constantly positive then buying into that specific nation's index would be a method of diversifying an investment portfolio. There are however benefits of investing in nations that have low levels of debt or go through periods of having higher debt. When governments borrow it demonstrates a will to invest in the nation and generate economic growth. This can be a good action in the short term because it shows attempts by the governing body to support the economy and maintain incomes for investors.
It can also be an advantageous opportunity by showing the free market in the economy is in difficulty and needs intervention. This information can tip an investor off to the potential of a good deal in the private investment market in that country, as it is evidence the free market is struggling and may be undervalued. Buying into undervalued investments can provide a good return, if the long term government income surplus or deficit figures for that nation show it follows a trend it can be predicted if the economy will improve increasing investment value.
Just the fact the MNIA model shows government income trends can be of assistance to an investor, even if they are looking to make a relatively quick return. Large scale investment into a nation will increase the value of the assets or funds in its economy generating 'artificial' gains. Regardless of how successful the government's spending policy is just the action of it increasing will push returns up higher. By looking at the long term pattern of government spending it can be anticipated when these 'fake' spikes in asset prices are likely to occur.
The MNIA model can also warn an investor of where to not put their money, if the borrowing of a nation is too great it can be avoided. High government debts are accompanied with larger debt repayments and is evidence the economy requires significant and long term government funded investment. If the cumulative total surplus or deficit over the period is a high negative number it means there has been a large accumulation of government debt during that time, which indicates government debt interest payments are high and the private sector is weak.
The mean average of debt over the time period will indicate the need to borrow in a nation for an extended duration. The standard deviation will show the variance of the income surpluses and deficits over the period. If the standard deviation is high it means there are considerable changes in the spending habits of the government, showing alterations in behaviour. A high mean average and a high standard deviation suggest the investment would be unsuccessful. However a high standard deviation and a low mean average could be a safe trend to invest in.
As a technique to predict national economic outcomes the MNIA was proven successful in the aftermath of the Euro Crisis. In an article I wrote which was originally published at the Adam Smith Institute in 2011, there is evidence the predictions in the book 'Euro Crisis' became reality. Many of the European Union member states statistically reviewed in the MNIA research that were predicted would enter financial difficulty did as anticipated. In short the long term national economic predictions made were proven to have been accurate.
Finally the information that you want, which countries did well in the MNIA model? The first nation that is identified in the research as being a good investment opportunity is Bulgaria. The government debt has remained at 20 to 30 percent of its GDP since the research was conducted, evidence the MNIA model works well. The next is Denmark, which has seen a large reduction in government debt since the research was conducted. Estonia also did well in the research keeping government debt at low levels, which is currently under 10 percent of GDP.
Luxembourg did reasonably well and has kept government debt below 25 percent of GDP, however it has risen since the research was conducted. The standard deviation is high, which could indicate it is in the bust period of the business cycle and needs fiscal stimulus. Finland has been similar since the research was conducted, its government debt rose by 10 percent of GDP but fell back by 5 percent of GDP. Like Luxembourg, Finland had a high standard deviation indicating it is following the business cycle and requires government investment.
Norway has seen an increase in its government debt since the research was conducted, it also has a high standard deviation. Sweden has been stable since the research was conducted with GDP falling, it has a low standard deviation. If you are looking for secure investments the research is accurate if you invest in the nations with a low cumulative total, mean average and standard deviation. If you want to play safe trends look for nations with low cumulative totals, low mean averages and high standard deviations, they are riskier but easier to predict.
In terms of the investment aspect of the data the MNIA model provides, all of the countries that were stated to have done well in this article have seen an increase in the value of their stock or share index since the research was conducted in 2012. If the MNIA model is performed and the evaluation of the data is correctly reviewed it indicates it would be an effective investment risk elimination tool. This is particularly useful for bulk investments like pension funds and long term saving accounts, which want low risk returns and price stability.
Data Source for follow up analysis.