The Milken Institute Global Opportunity Index is a valuable measure of how attractive a country is to foreign investment. Considering an array of different criteria, the index allows us to measure the current situation and changes over the years. For example, which countries appear determined to increase foreign investment?
What is the Milken Institute?
The Milken Institute is a US-based financial think tank which, among other things, is continually evaluating 126 countries worldwide concerning foreign investment. As a trader, issues such as reliable trade execution, comprehensive clearing services and regulatory protection are essential. However, sometimes it can be helpful to look at the broader picture.
What issues does the index take into consideration?
There are five individual categories, with each country given a score for:-
• Business Perception
• Economic Fundamentals
• Financial Services
• Institutional Framework
• International Standards and Policy
It is useful to delve a little deeper into each of these five categories to see what they relate to:-
Business perception
This is a measure of the broader business community in each country, taking into account potential constraints and the ease with which business disputes are resolved.
Economic fundamentals
This measure considers existing and future economic fundamentals, including macroeconomic outlook, innovation, development and different skill sets amongst the working population.
Financial services
As we touched on above, issues such as clearing services and trade execution are essential for traders. However, this ranking measures the depth and breadth of a country's financial services, which are integral to long-term wealth appreciation.
Institutional framework
While some could see this as a political measure, in simple terms, it reflects how historic institutions help or hinder business and innovation.
International standards and policy
Often overlooked, the international standards and policy measure interprets how a particular country's standards and regulations interact with the international community.
How do APAC countries rank in the Milken Institute index?
The APAC region is split into East Asia and Pacific, and South Asia. In 2022, the top 10 rankings for the combined areas (together with their 2017 rankings) were as follows:-
• New Zealand (6 in the world rankings/12 in 2017)
• Australia (12/8)
• Japan (13/13)
• Singapore (14/3)
• Hong Kong SAR, China (17/1)
• Republic of Korea (20/6)
• Malaysia (25/14)
• Thailand (34/50)
• China (35/42)
• Indonesia (57/72)
Some of the movements since 2017 may be a little surprising. However, it is essential to look at these in the context of the world rankings. Many countries have experienced positive and negative regional challenges impacting their current-day rankings. However, the global opportunity index does give you an idea of how receptive countries are towards foreign investment and relative changes compared to their international peers.
Foreign investment is essential
As a trader, trade execution technology and clearing servicesare essential, but foreign investment can significantly impact stock market liquidity. This allows traders to dip in and out of individual shares in decent size without ruining the market. Whether the Covid pandemic will have a material impact on future foreign investment trends remains to be seen.