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%