Opportunity Index

 

The Opportunity Index is an extension of the freedom index and GDP growth. Both are inputs into the Opportunity Index. The concept is simple: where will economic growth be happening over the next 10 years? A diversified investor will want their investment to be placed into this growth basket.

We include theoretical portfolio weights to capture this growth across a globally diversified portfolio.

Looking at the Index, one thing stands out. Incremental GDP is coming from both the developed world and emerging markets. We present our methodology below.

 

Demographics Matter… a Lot

A more populous country, with similar economic freedom will have advantages of size and scale. Greater working population translates into greater economic activity given a similar GDP per capita. Furthermore, more populous countries have a larger internal market for their goods and services. For example, India may not have a lot of Free Trade Agreements with other countries, however their internal free trade area encompasses 17% of the world’s population, more than double the size of the European Union common market. The United States currently has free trade agreements with 17 countries, but this common market is less than half the size of the internal Chinese market.

If you eyeball the countries on the list, clearly there is a preference for large countries. That is simply because in larger countries there are more opportunities.

Goldman Sachs understood this point when they coined the BRIC (Brazil, Russia, India, China). These countries are simply the most populous developing countries, with the exception of Indonesia. South Korea, Chile, Hong Kong and Thailand were not included in BRIC because they were too small.

Low GDP Brings Higher Growth Rates
Using the United States as an anchor, we looked at future GDP Per Capita of the United States, using a 2.23% real growth rate for 40 years. In that timeframe, any country that practices sensible policies of economic liberalization should be able catch up in terms of GDP Per capita.

Countries that are catching up in terms of GDP per capita, will have higher growth rates than countries that have less catching up to do. The greater the difference in GDP per capita, the greater the potential for growth as the county builds new infrastructure, often leapfrogging old technology with new.

But High GDP leads to higher Latent GDP
The rankings uses a long term GDP outlook we call Latent GDP. This value weights the long term growth rates times the current GDP.In other words, it is the value increase in GDP not expressed in percent but in dollars.

High GDP leads to a higher Latent GDP with a similar growth rates. The reason is simple: the base is higher. Rwanda might have fantastic GDP growth numbers, but the dollar value increase in GDP is not anywhere near the US, with its 3% growth.

When preparing our opportunity index, it is important to look at not just GDP growth numbers, but instead, Latent GDP. Opportunity can come from high GDP countries with lower growth, just as it can come a higher growth country from a lower GDP base.

Economic Efficiency Matters
Economic Efficiency encompasses economic freedom, infrastructure, monetary policy, property rights and fiscal policy. A country that has these characteristics will naturally be in a greater position to capture growth than one that is less efficient. This becomes an input into economic growth rates which in turn affects incremental GDP.

How to structure a portfolio to capture growth
Since growth is the ultimate driver of long-term portfolio returns, ultimately we should seek growth, as measured by incremental GDP. The most compelling incremental GDP stories come from poor countries with high economic efficiency and large populations. Tailor your portfolio to capture this incremental GDP. Likewise, a rich country with low populations and little economic freedom have little to offer investors.

So what where is the growth and what weights should we give to our diversified portfolio?

Country	GDP per cap	10 year growth rate	Population	Ranking	Weight
EU27			482,369,893		9.05%
Latin America			239,462,552		7.17%
Middle East			344,494,556		4.29%
Africa			543,557,450		2.76%
China	$ 7,400	6.66%	1,343,098,547	1	20.21%
India	$ 3,400	7.77%	1,192,406,988	2	10.92%
United States	$ 47,400	2.27%	310,873,826	3	7.97%
Japan	$ 34,200	2.47%	127,381,416	4	2.54%
Brazil	$ 10,900	4.70%	194,552,925	5	2.53%
Indonesia	$ 4,300	7.31%	234,099,660	6	2.41%
Mexico	$ 13,800	5.37%	108,776,775	7	2.16%
Germany	$ 35,900	2.35%	81,849,589	8	1.64%
United Kingdom	$ 35,100	2.97%	61,807,176	9	1.51%
Russia	$ 15,900	2.75%	141,242,305	10	1.45%
France	$ 33,300	2.78%	65,444,401	11	1.42%
Thailand	$ 8,700	7.11%	63,795,424	12	1.27%
Turkey	$ 12,300	5.21%	72,239,423	13	1.23%
South Korea	$ 30,200	3.04%	48,463,499	14	1.04%
Pakistan	$ 2,600	7.03%	171,575,730	15	1.00%
Canada	$ 39,600	3.07%	34,157,171	16	0.97%
Egypt	$ 6,200	6.55%	78,900,630	17	0.97%
South Africa	$ 10,700	5.81%	49,729,860	18	0.87%
Saudi Arabia	$ 24,200	5.12%	26,222,560	19	0.85%
Italy	$ 30,700	1.83%	60,188,020	20	0.84%
Philippines	$ 3,500	7.44%	94,061,909	21	0.82%
Spain	$ 29,500	2.49%	46,013,600	22	0.80%
Colombia	$ 9,800	6.01%	45,858,616	23	0.77%
Vietnam	$ 3,100	7.76%	86,638,890	24	0.72%
Bangladesh	$ 1,600	7.73%	165,497,864	25	0.71%
Malaysia	$ 14,700	5.86%	28,799,237	26	0.70%
Australia	$ 41,300	3.09%	22,347,352	27	0.67%
Nigeria	$ 2,400	6.06%	157,869,999	28	0.66%
Poland	$ 18,800	3.48%	38,081,650	28	0.59%
Peru	$ 9,200	6.87%	29,499,076	30	0.58%
Iran	$ 11,200	2.75%	74,782,148	31	0.54%
Chile	$ 15,500	6.27%	17,159,746	32	0.49%
Taiwan	$ 35,100	2.47%	23,124,711	33	0.47%
Argentina	$ 15,000	2.80%	40,563,863	34	0.40%
Netherlands	$ 40,500	2.29%	16,659,782	35	0.37%
Morocco	$ 4,900	6.79%	32,146,187	36	0.33%
Romania	$ 11,500	4.41%	21,468,518	37	0.27%
Kenya	$ 1,600	8.98%	40,900,535	38	0.24%
Ukraine	$ 6,700	3.21%	45,712,271	39	0.23%
Ethiopia	$ 900	8.33%	81,763,994	40	0.23%
Kazakhstan	$ 12,500	4.51%	15,834,865	41	0.22%
Algeria	$ 7,400	3.45%	35,317,230	42	0.21%
United Arab Emirates	$ 40,200	4.32%	4,775,142	43	0.20%
Sweden	$ 39,000	2.34%	9,346,453	44	0.20%
Uganda	$ 1,300	9.98%	33,887,560	45	0.20%
Belgium	$ 37,900	2.00%	10,766,358	46	0.20%
Israel	$ 29,500	3.68%	7,613,197	47	0.20%
Portugal	$ 23,000	3.40%	10,660,194	48	0.20%
Yemen	$ 2,500	8.45%	24,395,868	49	0.19%
Hong Kong	$ 45,600	2.51%	7,046,047	50	0.19%
Sri Lanka	$ 4,900	6.37%	20,428,237	51	0.19%
Switzerland	$ 42,900	2.28%	7,787,414	52	0.18%
Czech Republic	$ 25,600	2.82%	10,468,162	53	0.18%
Tanzania	$ 1,400	7.81%	44,644,397	54	0.17%
Tunisia	$ 9,500	5.86%	10,430,045	55	0.16%
Ghana	$ 1,500	9.84%	24,297,054	56	0.16%
Guatemala	$ 5,200	6.78%	14,322,970	57	0.16%
Hungary	$ 19,000	3.47%	10,006,130	58	0.16%
Austria	$ 40,300	1.83%	8,360,273	59	0.15%
New Zealand	$ 28,000	4.75%	4,357,663	60	0.15%
Denmark	$ 37,000	2.88%	5,549,129	61	0.14%
Greece	$ 30,200	1.53%	11,277,293	62	0.14%
Singapore	$ 62,200	1.57%	5,044,459	63	0.13%
Venezuela	$ 12,600	1.17%	29,015,805	64	0.12%
Ireland	$ 37,600	3.10%	4,509,690	65	0.12%
Finland	$ 35,300	2.74%	5,357,687	66	0.12%
Azerbaijan	$ 11,000	4.63%	8,960,958	67	0.12%
Syria	$ 4,800	4.22%	22,385,741	68	0.11%
Jordan	$ 5,300	8.23%	6,463,794	69	0.10%
Kuwait	$ 51,700	2.73%	3,092,162	70	0.10%
Slovakia	$ 22,200	3.54%	5,424,542	71	0.10%
Serbia	$ 11,000	3.77%	9,862,805	72	0.10%
Oman	$ 25,800	4.94%	2,935,756	73	0.10%
Bulgaria	$ 12,800	4.10%	7,544,938	74	0.10%
El Salvador	$ 7,300	6.76%	6,266,538	75	0.10%
Dominican Republic	$ 8,600	4.27%	10,241,350	76	0.09%
Ecuador	$ 7,800	3.36%	14,228,502	77	0.09%
Belarus	$ 13,400	2.75%	9,634,180	78	0.08%
Zambia	$ 1,500	9.49%	13,148,428	79	0.08%
Norway	$ 59,100	0.70%	4,866,574	80	0.08%
Costa Rica	$ 11,400	5.23%	4,642,648	81	0.07%
Panama	$ 12,700	5.55%	3,507,192	82	0.07%
Paraguay	$ 4,900	6.65%	6,500,741	83	0.06%
Honduras	$ 4,200	6.57%	7,616,813	84	0.06%
Madagascar	$ 1,000	8.38%	20,215,713	85	0.06%
Georgia	$ 4,800	8.14%	4,370,928	86	0.06%
Mozambique	$ 900	7.98%	23,303,803	87	0.06%
Nepal	$ 1,200	5.77%	29,946,951	88	0.06%
Angola	$ 8,700	1.22%	18,893,857	89	0.06%
Lithuania	$ 15,900	4.36%	3,340,492	90	0.06%
Cameroon	$ 2,300	4.86%	19,955,388	91	0.06%
Bolivia	$ 4,800	4.67%	10,015,330	92	0.06%
Croatia	$ 17,500	3.01%	4,433,282	93	0.05%
Uzbekistan	$ 3,100	2.48%	27,754,634	94	0.05%
Lebanon	$ 14,200	3.44%	4,272,576	95	0.05%
Sudan	$ 2,300	2.17%	39,988,481	96	0.05%
Rwanda	$ 900	10.52%	10,275,944	97	0.05%
Côte d'Ivoire	$ 1,700	4.97%	21,530,220	98	0.05%
Uruguay	$ 13,600	4.18%	3,377,469	99	0.05%
Burkina Faso	$ 1,200	7.13%	16,247,043	100	0.04%
Malawi	$ 900	8.13%	15,627,786	101	0.04%
Iraq	$ 3,600	1.30%	31,534,123	102	0.04%
Senegal	$ 1,600	6.56%	12,857,377	103	0.04%
Papua New Guinea	$ 2,400	7.43%	6,874,718	104	0.04%
Cambodia	$ 1,900	5.28%	15,064,088	105	0.04%
Mali	$ 1,200	6.92%	14,913,495	106	0.04%
Kyrgyzstan	$ 2,100	8.54%	5,557,652	107	0.04%
Albania	$ 8,000	5.46%	3,187,118	108	0.04%
Nicaragua	$ 2,900	6.91%	5,848,097	109	0.04%
Armenia	$ 5,800	6.51%	3,227,516	110	0.04%
Slovenia	$ 28,400	2.41%	2,048,605	111	0.03%
Haiti	$ 1,300	7.41%	10,282,822	112	0.03%
Botswana	$ 13,100	4.84%	1,977,885	113	0.03%
Latvia	$ 14,500	3.96%	2,239,800	114	0.03%
Jamaica	$ 8,400	5.04%	2,740,208	115	0.03%
Congo DRC	$ 300	5.13%	68,159,048	116	0.03%
Namibia	$ 6,900	6.23%	2,191,625	117	0.03%
Macedonia	$ 9,400	5.19%	2,053,946	118	0.03%
Mauritius	$ 13,500	5.48%	1,298,304	119	0.03%
Bosnia and Herzegovina	$ 6,600	4.19%	3,792,239	120	0.03%
Benin	$ 1,500	6.11%	9,203,944	121	0.02%
Estonia	$ 19,000	3.97%	1,331,970	122	0.02%
Mongolia	$ 3,300	7.63%	2,710,798	123	0.02%
Niger	$ 700	6.46%	15,730,352	124	0.02%
Bahrain	$ 40,400	2.55%	801,599	125	0.02%
Cyprus	$ 21,000	4.39%	798,092	126	0.02%
Moldova	$ 2,300	6.66%	3,564,289	127	0.02%
Tajikistan	$ 1,800	4.63%	7,083,393	128	0.01%
Gabon	$ 14,600	2.88%	1,503,763	129	0.01%
Guinea	$ 1,000	5.10%	10,319,718	130	0.01%
Togo	$ 900	6.41%	6,799,037	131	0.01%
Trinidad and Tobago	$ 22,100	1.38%	1,327,083	132	0.01%
Sierra Leone	$ 900	6.70%	5,825,869	133	0.01%
Congo	$ 4,200	2.69%	3,782,441	134	0.01%
Laos	$ 2,100	3.10%	6,467,888	135	0.01%
Afghanistan	$ 800	1.08%	28,890,345	136	0.01%
Mauritania	$ 2,100	3.97%	3,384,794	137	0.01%
Luxembourg	$ 81,800	-0.07%	499,373	138	0.01%
Chad	$ 1,600	1.25%	11,522,136	139	0.01%
Iceland	$ 38,400	2.19%	321,736	140	0.01%
Brunei	$ 50,300	0.94%	407,160	141	0.01%
Gambia	$ 1,400	7.29%	1,751,376	142	0.01%
Fiji	$ 4,300	5.61%	860,801	143	0.01%
Bahamas	$ 28,600	2.44%	343,949	144	0.01%
Equatorial Guinea	$ 37,900	0.30%	694,455	145	0.01%
Montenegro	$ 9,900	3.81%	618,197	146	0.01%
Guyana	$ 6,800	4.10%	763,600	147	0.01%
Belize	$ 8,400	6.03%	329,218	148	0.00%
Lesotho	$ 1,700	4.92%	2,069,687	149	0.00%
Liberia	$ 500	7.18%	3,603,852	150	0.00%
Swaziland	$ 4,500	2.94%	1,180,142	151	0.00%
Suriname	$ 9,900	2.42%	525,720	152	0.00%
Bhutan	$ 5,000	3.38%	706,061	153	0.00%
Burundi	$ 300	3.86%	8,588,623	154	0.00%
Cape Verde	$ 3,600	4.62%	509,036	155	0.00%
Djibouti	$ 2,800	3.52%	880,848	156	0.00%
Maldives	$ 4,500	5.20%	326,211	157	0.00%
St. Lucia	$ 11,100	3.78%	172,757	158	0.00%
Central African Republic	$ 700	2.32%	4,488,772	159	0.00%
Vanuatu	$ 5,500	4.25%	243,432	160	0.00%
Solomon Islands	$ 2,600	4.00%	535,918	161	0.00%
Guinea-Bissau	$ 600	5.12%	1,643,864	162	0.00%
Samoa	$ 5,200	4.99%	181,363	163	0.00%
Eritrea	$ 700	0.99%	5,206,420	164	0.00%
St. Vincent and the Grenadines	$ 10,600	3.32%	109,251	165	0.00%
Comoros	$ 1,000	4.90%	694,928	166	0.00%
Seychelles	$ 21,600	1.73%	84,361	167	0.00%
Kiribati	$ 6,200	4.88%	100,195	168	0.00%
Tonga	$ 6,300	4.06%	105,737	169	0.00%
St. Kitts and Nevis	$ 14,400	3.11%	52,374	170	0.00%
Dominica	$ 10,500	3.10%	67,134	171	0.00%
Grenada	$ 10,500	1.62%	104,426	172	0.00%
Antigua and Barbuda	$ 16,500	0.86%	89,153	173	0.00%
Zimbabwe	$ 100	1.06%	12,424,068	174	0.00%
Sao Tome	$ 1,700	1.95%	168,086	175	0.00%
Myanmar	$ 1,100	-1.70%	50,420,160	176	0.00%
Qatar	$145,300	-2.38%	1,424,358	177	-0.01%