Shareholder-Friendly Countries
One fact is clear: the state of any economy is influenced by a number of factors, such as interest rates, monetary policy, commodity prices, political governance, and so on, and many of those factors are almost impossible to control.
In fact, only a small change in one of those factors can have very large effects on the economy and the financial markets.
However, some countries and regions have better political conditions and regulatory frameworks that favor long-term investment than other places. For example, Scandinavia is known to be a very stable region, and there will hardly be any “revolution” there.
On the other hand, there is always a risk of political tension in countries like Turkey, Russia, Argentina, and China or regions like Africa and the Middle East.
In general, we can say that some countries are more shareholder-friendly than others. But why is that?
Why some countries are more shareholder-friendly than others
The truth is that countries with a free economic system and social freedom also tend to be more productive, as there is more ease of doing business.
Expectedly, high productivity leads to greater efficiency and a more robust stock market that offers better returns on shares over time. In other words, a growing economy leads to growth in earnings per share.
Some shareholder-friendly countries
Every year, the Heritage Foundation makes a ranking of the most free countries, using four main criteria: rule of law (property rights, corruption), size of public authorities (tax rates, public share of the economy), bureaucracy (how easy it is to run a business), and markets (open/closed economy). In its 2016 report, the ranking was as follows:
- Hong Kong 88.6
- Singapore 87.8
- New Zealand 81.6
- Switzerland 81
- Australia 80.3
- Canada 78
- Chile 77.7
- Ireland 77.3
- Estonia 77.2
- UK 76.4