Country Checklist

Harping on the importance of covering your bases to avoid massive errors, a checklist for a top-down view of countries is to follow. Included in it are checks for monetary policy, fiscal policy, government style pro/cons, investment openness, trade openness, currency stability among other things.

This basic understanding will help give us some color on the country as a whole. It may be especially helpful if you would like to work with ETFs while over/under weighting certain countries or regions. While it may not be overly indicative of where out-performance can be had, this has potential to uncover risk where you may not have seen it hiding otherwise.



What is the style of government?

When it comes to developed markets, as a general rule, governments are some variation of democracy. In the emerging and frontier countries that is not nearly as common.

Is there corruption?

This question could possibly be reworded as “How bad is the corruption?” as all governments find a way to depurify their respective system. One could argue that even in the US< the lobbyist system is a form of corruption, although legal. While it does have a say in how things get done, the US seems reasonably clean as compared to Iran, Afghanistan, or Venezuela according to the Corruptions Perceptions Index.

Are people generally free?

Another useful tool, The Index of Economic Freedom can be used to asses a country’s prospects. According to it’s electronic home, “The Index covers 12 freedoms – from property rights to financial freedom – in 186 countries.” In my view, and as a general rule, the more free a people are, the more potential economic prosperity.

Surprisingly, the US is ranked #17, which is considered “mostly free”. Only five countries top the list in the “free” category: Hong Kong, Singapore, New Zealand, Switzerland, and Australia.



What is the size of the economy, in terms of GDP?

The size of the economy matters when viewed vs similar economies. When comparing countries to businesses, one country may be gaining market share vs. a competitor, and hence be improving it’s position.

How free is trade and who are the country’s biggest trading partners?

Embargoes are political devices used to discourage outside trade or punish another country economically. As long as the country you are analyzing is not being banned by others major players, this will be irrelevant. Sometimes tariffs are implemented to persuade a country to make a good within its own borders, or to trade with other, more friendly, allies.

Being reliant on a single country, a few countries, or geographically or politically correlated countries can be a risk. A systemic risk could present itself, bringing your country down with the ship. These are things to be aware of.

What are the country’s largest industries?

Diversification of industries, like securities, tends to fend off erasable risk. This also diminishes potential economic reward. If you are a risk-first thinker, this is a trade-off you should welcome.


Monetary Policy

Does the country have it’s own currency, and if so, is it stable? (3 yr range)

The US Dollar is currently the world’s reserve currency. Before the 1971 dismantling of the gold-exchange standard, an implication was alive in which other currencies could be exchanged for dollars and dollars to gold. Since, the convertibility to gold has been cancelled. This has lead to a free-floating fiat system in which the dollar still seems to reign supreme.

Despite unimaginable hours running the printing press, the Federal Reserve still seems to receive credit as the most powerful entity in the world. This may, in fact, not be a fiat system at all, but a dollar back by guns and tanks. In any case, the dollar is considered stable- it is a benchmark  in which other currencies can be compared.

Does the country share a currency, and if so, does it benefit from this?

Ah, the Euro; An experiment still producing a wealth of feedback. Germany, the austere, disciplined, and productive backbone of this currency pact, may presently be suffering from the likes of Portugal and Greece. You are only as strong as the weakest link, it is said. Greece and Portugal may be awake only because of their more puritanical neighbors.

A benefit and a curse is how some describe a shared currency- it just depends on who you ask.

What is the current state and direction of monetary policy, easy of austere?

In the US, the Fed has kept money as easy as ever since they first took action in the Great Financial Crisis. The direction, however, is changing. Letting certain balance sheet assets mature, without replacing them, is akin to downshifting a vehicle.

The European Central Bank is hungry for bonds, still devouring them-some, they are even privileged to pay interest on, effectively. This is likely to continue until the end of his new year. The direction is still friction-less.

Japan is buying ETFs! Equity ETFs! Simply put, the BOJ is easy and doesn’t care who knows it.


Fiscal Policy

Is the effective corporate tax rate competitive?

This has been a hot topic in the states during this election season and current presidency. Many were carrying torches toward companies like Apple, who decided to be domiciled in Ireland due to lower taxes despite making most of their money elsewhere.

What is the majority of government spending used for?

For some it may be defense, for others infrastructure. Different countries have different needs so the allocation of public spending can influence growth and stability in differet ways.

What is the current state and direction of fiscal policy, easy or austere?

Is there a budget deficit, meaning the country is likely in an easy stage of fiscal policy, or is there a surplus, meaning they are cutting back.




In the US, the labor force participation rate has been falling for the past decade. From it’s peak at that time of over 66%, it has diminished to just under 63%. This is a negative sign as less eligible people are actually working to improve economic output.

The US is not alone in this- Japan’s participation rate, along with the global average, has been falling for decades. While this is not necessarily a cause for concern, the median age in Japan is near the highest in the world at 48. This is a whole decade older than their stateside counterparts and does not bode well for the future.


You’ve heard it a million times. Entitlements are ruining the country. What’s interesting, though, is entitlements have been given a bad name. People who pay in are actually entitled to take their money out. Talk about misguided anger. Nonetheless, some of our perfectly efficient and farsighted governments have made a mess of their promises.

This boo-boo has left a scar that they hope to inflate away, but will likely have to come to terms with at some point. Having the reserve currency of the world has given us the option to sweep this problem under the rug, but other countries, finding themselves in the same  position, may not be so lucky.


Productivity is what drives growth. Education is what drives productivity. Being on the razor’s edge of technology and science is generally the best way to gain a competitive advantage, therefore education in these areas may predict, or at least set a solid foundation for these prospects.




Although we are far removed in time from a conflict on our soil, many other countries are again not so lucky. War disrupts and reallocates labor, raw materials and demand. It causes losses, both physical and psychological. Allies and strength of military are still important factors in the relatively peaceful time in, at least, the developed countries.

Trade War?

As mentioned above, retaliations can be made in the form of tariffs and embargoes. It can cripple the likes of a country with a concentrated trade portfolio. While we seem to live in a time of political aggression, a bit of diplomacy never hurt on the trading front.

Currency War?

Another serious risk to trade and economic health is the possibility of a currency war. Stability is a sought after quality in foreign exchange, but some countries aim to take advantage of others by weakening their currency, improving exports and therefore taking a larger piece of the pie.