With governments in many emerging markets growing increasingly unstable, it's hard for investors to figure out where their money will be safe. Now Lehman Brothers and the Eurasia Group, both of New York, have come up with an index that measures political and economic risks in emerging market countries.
The Lehman Eurasia Group Stability index generates monthly country ratings for four distinct categories of risk - political, economic, security and social structures, such as strikes, riots and social tensions.
Tina M. Nelson, director of the joint venture formed to produce the index, said ,"the goal is to help investors and analysts sift through all the information - the noise - coming from these countries."
The analysis incorporates 20 different composite variables - each of which incorporates both quantitative and qualitative factors - that measure the four risk categories.
As an example, she said the analysts for the index would look at "youth disaffection - where are youths most likely to riot, create turmoil." One statistic that can be used to measure this factor is youth unemployment.
Many of the 450 people covering the countries for Lehman Brothers Eurasia Group are located in the countries, in touch on a day-to-day basis with what is happening politically and economically.
Ms. Nelson said using employees from both firms gives the venture the best of both worlds: "Having political scientists and economists working together leads to better calls," she said.
LEGSI now covers 10 countries - Azerbajian, Bulgaria, Croatia, Hungary, Indonesia, Poland, Russia, Thailand, Turkey and Ukraine. Coverage will expand to include Argentina, Brazil, Colombia and Venezuela by the end of this year. More countries are to be added next year.
The LEGSI started publishing in October and will be published on a monthly basis. Clients also will receive regular country reports and flash reaction pieces when warranted by breaking news.