Comparing countries’ ratios of net foreign assets (NFA) to GDP could help with investment decisions as central banks embark on monetary easing, which will make worthwhile yields more difficult to find, state-run First Securities Investment Trust Co (第一金投信) said yesterday.
NFA is the value of the assets that a nation owns abroad minus the value of domestic assets owned by foreigners. It reflects a nation’s indebtedness.
“The higher the NFA-GDP ratio, the less vulnerable a nation is when global funds move out,” First Securities Investment fixed-income assistant manager Cash Huang (黃子祐) told a media conference in Taipei.
The IMF has assigned great importance to NFA positions when assessing a nation’s wealth, Huang said.
Based on the criteria, oil-rich Kuwait outperforms other economies with an NFA-GDP ratio of 549 percent, followed by Hong Kong (357 percent) and the United Arab Emirates (270 percent), he said.
Azerbaijan (252 percent) is fourth, followed by Singapore (225 percent) and Taiwan (199 percent), Huang said.
About 40 to 50 economies earn “wealthy” ratings with an average NFA-GDP ratio of 106 percent, compared with 9 percent for mature economies and 80 percent for emerging economies, he said, adding that poor nations have a ratio of minus-54 percent.
Economies with negative ratios include Barbados, Cyprus, Greece and Ukraine.
Huang compared bond purchases to lending, saying that credit profiles should sit atop an investor’s list of concerns.
“It is safer to lend money to rich borrowers like Hon Hai Precision Industry Co (鴻海精密) founder Terry Gou (郭台銘) to guarantee interest income and minimize default risks,” Huang said.
Economies with high NFA positions have average coupon rates of 2.84 percent on their investment-grade debts, higher than 2.68 percent for advanced economies, but lower than 3.3 percent for emerging economies and 3.14 percent for debt-ridden countries, Huang said.
The NFA-rich basket of countries posted investment returns of 18.21 percent over the past decade, ahead of global bonds at 8.74 percent and emerging-market debt at 14.38 percent, he said.
Bonds issued by top-tier economies carry a near-zero default risk, making them a good investment choice in a low-interest-rate environment, he added.