Gary Griswold's  Instablog

High risk and high return are generally understood to go together, but are there exceptions?  Are there ways to find a higher return with a lower risk?  The strategy described here is to select countries based upon a positive current account as a percentage of the countries own GDP.

Those countries with the highest current account are those countries most likely to weather the storm should world economies take a turn for the worst, because these are the countries with the most investment assets under their own control.  If there is a market down-turn, these will decline along with everything else, but if we start to see soverign defaults, I think these are the countries least likely to fail.

Notice that an investment in these countries over the past few months produced a much higher return than the average world return of +6.0%.

These statistics were all found in the Economist dated June 27th.  FXI is not a very good proxy for China, but it is the one that I use.

In the final selection process, I consider a weighted average of current account, GDP and the inverse of CPI.  This results in an asset allocation model that includes almost all of these plus the India, because it still has a positive GDP, and I own Brazil even though the model doesn't select it.