BLACKROCK

INVESTMENT
INSTITUTE
BLACKROCK SOVEREIGN RISK INDEX
SECOND QUARTER 2014
JULY 2014
[ 2 ] BL ACKROCK SOVEREI GN RI SK I NDEX
The opinions expressed are as of July 2014 and may change as subsequent conditions vary.
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EXECUTIVE DIRECTOR
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CHIEF STRATEGIST
Ewen Cameron Watt
EXECUTIVE EDITOR
Jack Reerink
Benjamin Brodsky
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Fixed Income Asset Allocation
Sami Mesrour
Member of BlackRock
Model-Based Fixed Income Team
Ewen Cameron Watt
Chief Investment Strategist,
BlackRock Investment Institute
Garth Flannery
Member of BlackRock
Model-Based Fixed Income Team
Sovereign Risk Update
Our latest update of the BlackRock Sovereign Risk Index (BSRI) details quarterly
movers in our 50-country index and highlights Argentinas position. Try our
interactive BSRI to view individual country scores, compare two countries
and sort rankings by index components.
Our main headlines for the quarter ended June 30:
} Revisions to the International Monetary Fund (IMF)s quarterly growth projections
resulted in a reshufing of rankings. Belgium, UK, Israel and Netherlands beneted.
Spain rose due to an improvement in its net debt position.
} Brazils ranking dropped four notches due to a rise in the countrys short-term
debt. Russia dropped three spots due to a decline in its perceived government
effectiveness and a downward revision to its economic growth prospects.
} Argentinas BSRI score dipped as the IMF slashed the countrys long-term GDP
forecasts. A history of defaults and political upheaval have been the countrys
Achilles heeland have dragged Argentinas overall score lower as the country
negotiates with holdout creditors who have rejected its debt restructuring.
Drawing on a pool of nancial data, surveys and political insights, the BSRI provides
investors with a framework for tracking sovereign credit risk. The index uses more
than 30 quantitative measures, complemented by qualitative insights from third-
party sources.
The index breaks down the data into four main categories that each count toward
a countrys nal BSRI score and ranking: Fiscal Space (40%), Willingness to Pay
(30%), External Finance Position (20%) and Financial Sector Health (10%).
} Fiscal Space includes metrics such as debt to gross domestic product (GDP),
the debts term structure, tax revenues and dependency ratios.
} Willingness to Pay measures a governments perceived effectiveness and
stability, and factors such as perceived corruption.
} External Finance Position includes exposure to foreign currency debt and the
state of the current account balance.
} Financial Sector Health gauges the banking systems strength.
For full descriptions, see Introducing the BlackRock Sovereign Risk Index of June
2011. The BSRIs inputs are updated at irregular intervals, meaning some changes
may only reect the timing of data releases. Small changes in scores can spur big
changes in rankings, as many issuers are bunched together in the index.
BSRI QUART ERLY UPDAT E [ 3 ]
DONT CRY FOR ME
Argentina BSRI Breakdown, 20112014
Source: BlackRock Investment Institute, July 2014.
Fiscal
Space
Willingness
to Pay
External
Finance
Financial
Sector
Overall
0
-0.5
-1
B
S
R
I

S
C
O
R
E
Jun 14 Jun 11 Jun 12 Jun 13
Revisions to the IMFs long-term GDP growth forecasts
resulted in some large ranking shifts in the quarter. Belgium
(up four notches in our 50-country index), UK (up three), Israel
and Netherlands (both up two) beneted from upward
revisions to their GDP growth forecasts. Spain had the biggest
BSRI score gain (and its ranking rose four notches to 38th)
due to an improved IMF assessment of its net debt position.
Brazil (down four to 31st) fell the most in the rankings
(along with China). Brazils debt is becoming more front-
loaded. Short-term debt rose to 21% of GDP from 12% a
quarter earlier, IMF data show. China fell four notches to
23rd on a modest decline in its BSRI score, which is
bunched together with countries such as UK and Poland.
Russia dropped three spots due to a decline in its perceived
Willingness to Pay and a downward revision to its growth
prospects against a backdrop of rising tensions with Ukraine.
Argentina registered the biggest BSRI score decline (but
dropped just one notch) as the IMF slashed the countrys
long-term GDP growth forecasts.
A WORLD OF SOVEREIGN RISK
BSRI Country Rankings by Quintile, June 2014
Source: BlackRock Investment Institute, July 2014.
Click for
interactive charts
This hurt Argentinas Fiscal Space score. See the chart below.
Weak Willingness to Pay is the main drag on Argentinas overall
score. Argentina is seeking a deal with holdout creditors who
have rejected its debt restructurings.
1 Norway
2 Singapore
3 Switzerland
4 Sweden
5 Germany
6 Taiwan
7 Finland
8 Canada
9 New Zealand
10 Australia
Top ten
11 Netherlands
12 Denmark
13 Chile
14 South Korea
15 USA
16 Austria
17 Malaysia
18 Czech Republic
19 Peru
20 United Kingdom
11-20
21 Poland
22 Israel
23 China
24 Russia
25 Philippines
26 Thailand
27 Belgium
28 Colombia
29 France
30 Slovakia
21-30
31 Brazil
32 Mexico
33 South Africa
34 Japan
35 Croatia
36 Indonesia
37 Turkey
38 Spain
39 India
40 Nigeria
31-40
41 Ireland
42 Hungary
43 Slovenia
44 Italy
45 Argentina
46 Portugal
47 Ukraine
48 Egypt
49 Venezuela
50 Greece
Bottom ten
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or sell any securities or to adopt any investment strategy. The opinions expressed are as of July 2014 and may change as subsequent conditions vary. The information and opinions contained in this paper are derived
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Reliance upon information in this paper is at the sole discretion of the reader.
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