The Discount For Obnoxious Governments

July 25, 2014 in Daily Bulletin

The Economist wrote about how global markets respond to what many consider to be the pariahs of the international political order:

  • Russian stocks are valued at just 5.2 times their annual earnings.
  • The average in emerging markets is 12.5. If Russian stocks traded at this ratio then their valuation would more than double, or increase by close to a trillion dollars, to $1.77 trillion.
  • The reason why shares trade at such low values is likely due to its government led by President Vladimir Putin, which has jailed those who advocate for good corporate governance and anti-corruption efforts.
  • All in all this is making each Russian citizen about $7,000 poorer.
  • This phenomenon is known as the “Discount for Obnoxious Governments” (DOG) phenomenon.
  • The stock market valuations of Argentina and Iran are also about half what they should be, making the countries billions of dollars poorer.
  • It’s not just DOG that makes financials difficult for governments. Leaders also have to pay far more in interest to borrow funds.

Read more about DOG, how it is calculated, why citizens of the countries don’t necessarily notice the impact it’s having on their lives, and more over here.

Source: The Economist