All around the world, the most competitive markets are the ones that consistently reward investors year after year. A stable economic climate, a reliable business environment, and an orderly system of law provide the lifeblood for innovation and competition to thrive.
It's stunning, then, how poorly some of today's highly touted economies fare in the World Economic Forum's recent release of the 2013-2014 Global Competitiveness Report. Last week I checked in on the WEF's ranking of the top five most competitive countries in the world, but let's look at a handful of stunning under-competitive economies from around the world. From a few of the closely watched BRIC nations to victims of the recession and worse, the world's five most surprisingly uncompetitive countries are a mix of bad luck and poor economic foundations that should give investors pause. Let's start out with No. 5.
5. Pakistan, 133rd most competitive
It's not particularly surprising that troubled Pakistan's not a very competitive economy, but just how bad it is comes as a shocker. Here's a short list of countries the WEF ranked as more competitive than Pakistan: Argentina, a country teetering on the edge of a sovereign-debt default; Egypt, a nation still battling over the aftereffects of the Arab Spring and the subsequent military coup earlier this year; Uganda, a country that's dealt with a litany of human-rights violations from guerilla groups; and Zimbabwe, a nation that the CIA ranked as having the third-worst GDP per capita in the entire world in 2012.
There's an easy takeaway for investors here: Just because a market's big -- and Pakistan's big, as the sixth-largest country in the world by population -- doesn't mean it's an attractive target for companies looking for global growth. Not every sizable market is China or Brazil.
Pakistan ranked 142nd in the WEF's list of basic requirements for an economy, including a shockingly bad 145th placing for the nation's macroeconomic environment. A long-standing border tension with India, an unstable region, and a nationwide energy and electricity shortage that's slowing down economic progress by an estimated 2% per year, according to the United States Agency for International Development, have turned this big market into a flashing red caution sign for any multinational firm. There's no saving grace for investors here: Pakistan's a horrifically uncompetitive country for business, stocks, or much else in the name of economic activity.
4. Greece, 91st most competitive
Here's a market a little more familiar for investors and actually has a few stocks listed on American exchanges. Greece has been hammered by Europe's recession: The country shoulders the second-heftiest public debt burden in the world, behind only Japan. The WEF slammed Greece for its macroeconomic ranking, for which the country ranked a miserable 147th.
However, there are bright spots for Greece's bogged-down economy. Greece ranked as the 38th-best economy for infrastructure, the 41st-best economy for higher education and training, and the 39th-best economy for technological readiness, according to the WEF's report. While those factors alone won't be able to turn around the country's floundering economy and sky-high unemployment rate, the high infrastructure rating in particular is a key indicator that Greece has a semblance of economic footing for getting businesses back on track in the long run.
That doesn't mean you should dive headlong into investing in Greek stocks. However, one way to play Greece is through dry bulk shippers. Several major shippers are based out of Greece, and while the industry's been slammed since the financial crisis, the critical Baltic Dry Index, a measure of shipping prices, recently hit a 21-month high and has more than doubled since June. While shippers are still looking to get their feet under them, consider Greek-based Navios Maritime (NYSE: NM). While Navios' shares already have more than doubled year to date, the company boasts a manageable debt load for the industry and controls a shipping fleet in which 33% of vessels are Capesize ships, the class of vessel that has seen shipping rates rise the most recently and should continue to benefit with the industry's comeback.
3. Russia, 64th most competitive
Yikes. Russia's inclusion among the celebrated BRIC nations hasn't saved its economy from underperforming in competitiveness. While the WEF praised Russia's macroeconomic climate by ranking it 19th in the world, the country performed shockingly poorly in basic economic institutions, financial market development, and the market efficiency of goods, ranking 121st or lower in all three.
Russia's not known for its major companies, but no organization dominates this emerging market like Gazprom (OGZPY +0.00%). The state-owned company provides around a quarter of Europe's total natural gas and forms a sizable portion of Russia's overall GDP. It hasn't played well for investors in recent years -- the stock's down more than 9% in 2013 -- but some on Wall Street have hope for this troubled stock. Deustche Bank predicted earlier in September that natural gas exports to Europe would continue to rise as the region recovers from the financial crisis, and Gazprom's well positioned to supply China's rising demand for gas, despite toughening competition from Russian rival Rosneft.
Gazprom's shares have picked up more than 36% over the past three months despite its year-to-date losses, and if China turns to Russia as its leading energy partner in the coming years, expect the stock's bottom to give way to a big rise. Russia's not an amazing investor opportunity by any means, with such a poor competitiveness ranking, but top companies like Gazprom rank among some of the world's largest businesses.
2. India, 60th most competitive
Speaking of emerging markets, India didn't perform much better than Russia in the WEF's competitiveness scoring. India is the world's second most-populous country, but it's still dealing with a significant rural population and a legal system that hasn't often paid respect to intellectual-property protection. Still, the WEF ranked India as the 41st best market for innovation and the 19th best-developed financial market, offering a slice of what could be for this ballyhooed economic riser.
Depending on the industry, India can be either an investor's dream or an investor's nightmare. Disney's (DIS 0.55%) made the most of its India foray, fully acquiring Indian media company UTV for $454 million last year and emerging as the country's largest film studio behind its subsidiary's box office and television success. Disney's now preparing to launch three Bollywood films under its own label between 2014 and 2015. India's film industry is expected to record around $4.5 billion in revenue by 2016, a serious increase over the $3 billion in sales in 2011, and Disney's taking steps to cement its place in this growth market.
On the other hand, pharmaceutical investors have experienced a bumpy road in India. While the country's a giant market for drugs, India's lackluster patent protection has come back to hurt companies making inroads into the nation. Swiss pharmaceutical giant Roche (RHHBY +0.39%) announced in August that it won't vie for an Indian patent for its breast-cancer drug Herceptin, in part because of the country's patent environment that has seen other companies fail to earn protection for select drugs.
India's still a huge opportunity for Roche and other companies across the market, but it's also a frustrating emerging market that will endure its bumps for investors and businesses alike as it develops.
1. Italy, 49th most competitive
Italy's ranking cracks the top 50, but it's a shockingly poor performance for the 10th-largest economy in the world last year and the EU's third largest economy behind Germany and France. Italy's 130% debt-to-GDP ratio ranks as the third-largest public debt burden in the world, and the country's economy has floundered since the recession. Italy's GDP fell 2.4% last year, and the IMF expects that figure to fall by another 1.8% this year before returning to growth in 2014 -- albeit at a modest 0.7% for the year, below the IMF's projections for the euro area as a whole.
Italy's labor market efficiency, financial market development, and macroeconomic environment all ranked below the top 100 countries in the world in the WEF's report. The country's government has been volatile this year, to put it lightly, which has made it hard on investors trying to capture a piece of the Italian market. Italy's leading ETF, the iShares MSCI Italy Capped Index (EWI +1.18%), has been a picture of chaos year to date, swinging wildly between month-long slides and booms and settling in at 5.5% year-to-date gains so far.
While the WEF praised Italy's business sophistication and infrastructure, this is one European economy that's still facing an uphill climb out of the recession's aftermath. It remains to be seen whether Italy manages to record actual economic growth next year, but for investors looking to break into Europe, sticking with stronger economies such as Germany -- the WEF's fourth-ranked country in its competitive index -- is a better idea.
The many downsides of uncompetitive countries
There are many great markets to choose from if you're looking to diversify your portfolio overseas. These five economies aren't those: From bureaucratic problems and legal nightmares to all-out economic maladies of the worst order, these five uncompetitive countries offer dim prospects for investors outside of select stocks such as Gazprom and Navios Maritime.
For investors new to the global markets, stick to strong stocks for the long term that can capitalize on solid business environments and strong national economic foundations. There are more than enough of those to avoid risking your investments on uncompetitive economies.
