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Aswath Damodaran: Risks of investing across the globe

Every year, Professor Damodaran analyses the country-specific risks of investing in, for example, Denmark, Brazil or China. He has quite an extensive model and even the short version of the report has become long. Nevertheless, it is interesting to get an overview of the risk for the individual country if you invest in companies that are either operated from or operating across the globe. If the country has a high “Country Risk Premium”, you as an investor should expect the company to be traded cheaper than other comparable companies in countries with lower risk.

The updated data can be downloaded (here) – see the tab “Country Lookup” and see in particular “Country Risk Premium”.

In one of the most important passages, Damodaran writes:

For much of my valuation journey, the status quo in valuation has been to look at where a company is incorporated to determine its risk exposure (and the equity risk premium to use in assessing a hurdle rate). While I understand that where you are incorporated and traded can have an effect on your risk exposure, I think it is dwarfed by the risk exposure from where you operate. A company that is incorporated in Germany that gets all of its revenues in Turkey, is far more exposed to the country risk of Turkey than that of Germany.

Click here to go to the external source.

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Disclaimer of liability

The above has been prepared by Børsgade ApS for information purposes and cannot be regarded as a solicitation or recommendation to buy or sell any security. Nor can the information etc. be regarded as recommendations or advice of a legal, accounting or tax nature. Børsgade cannot be held liable for losses caused by customers’/users’ actions – or lack thereof – based on the information in the above. We have made every effort to ensure that the information in the above is complete and accurate, but cannot guarantee this and accept no liability for errors or omissions.

Readers are advised that investing may involve a risk of loss that cannot be determined in advance, and that past performance and price development cannot be used as a reliable indicator of future performance and price development. For further information please contact info@borsgade.dk

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