By Katie Prideaux, Analytics Product Specialist
In the current volatile market environment, the value of considering non-fundamentals in analysis is gaining more attention than ever before. Within sovereigns in particular, market participants are looking to the resiliency of healthcare services and the ability of governments to put control measures in place in order to achieve an understanding of the impact to the economic outlook of that country.
Using Beyond Ratings’ leading ESG metrics on sovereigns, we have analysed the impact on yields of a country’s ability to tackling the crisis. The ESG Factor-In model is a quantitative approach to ESG analysis by linking country economic performance and ESG. The model assesses the overall ESG performance of a country relative to its peers, across 31 themes and over 220 ESG indicators, highlighting the ESG factors that contribute to the sustainable growth of a country.
Health Infrastructure and Health Issues metrics – what can these tell us?
We first look at the areas of Health Infrastructure, which is an aggregated score of a country’s health system versus its peers - such as number of hospital beds, doctors and nurses per population unit, and levels of sanitation - and Health Issues, which aggregates indicators such as expenditure on healthcare by the population, prevalence of smoking and immunization.
It’s not surprising that as wealth of a country increases, we generally see better performance in both metrics; that is, the country’s ability to withstand shocks to the healthcare system. However, we see some other interesting features; in particular, that Upper Middle Income countries such as Turkey, South Africa and Malaysia outperform Non-OECD High Income countries on average across both Health Issues and Health Infrastructure sub-pillars.
Health issues subpillar scores
Health infrastructure subpillar scores
Source: Beyond Ratings, as of end 2017.
ESG Performance and Yield
Leveraging the analytics ability of Yield Book, we can look at asset reallocation decisions based on healthcare factors. We see that a screening technique targeting countries with an ESG score higher than 55 on both Health Issues and Infrastructure could achieve a yield of 0.612% vs the benchmark WGBI yield of 0.486% (as of 31 Mar 2020).
Yields of WGBI vs Healthcare Screened WGBI
Source: FTSE Russell as of 1 April 2020. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
Can we predict the next catastrophe?
Given the catastrophic and unprecedented recent rates of cases and deaths in Spain and Italy, we explore potential similar scenarios within countries of scale and the resilience of the same health systems.
Other countries of high population and GDP currently observing high rates of cases per unit of population are Belgium, Austria and Switzerland. In the below graph, any score above 0% indicates that given a country’s GDP, its actual performance is better on an indicator level versus projected performance. We see that, for Austria and Luxembourg, the percentage difference between the projected and the actual score of health indicators show higher resiliency than their peers, and so could be more likely to cope with high case frequency and pressure on the system.
Indicator values within Europe, relative to projected performance
Source: Beyond Ratings, as of 31 December 2018. Past performance is no guarantee of future results. Please see the end for important legal disclosures.
Comparing health indicators more widely on a global scale, the data shows us that Lithuania and Ukraine feature in the bottom 5, which could indicate that Europe as a region has some unidentified risks remaining. Strong performances on Health Issues are shown by Argentina and Slovenia, indicating that the health of the population is generally resilient. In terms of Health Infrastructure, Norway scores very highly as expected, and among the lowest performers is India – given their current low level of cases and deaths, this could indicate good resiliency.
Drivers of performance in Middle Income countries
To understand the performance of countries against its most relevant peers, we can dig down into the detail behind this and analyse countries grouped by income level – this allows us to look at the preparedness on a level playing field.
For example, observing the hospital beds per population unit across Upper Middle income countries provides a picture of the capacity of healthcare services to withstand a scenario with a high volume of patients with critical care needs, versus what’s expected, given the GDP of that country. Here we note that various eastern European countries score well relative to their health group peers in the Middle East and Central America:
Healthcare metrics in selected Upper Middle Income countries
Source: Beyond Ratings, as of end 2017.
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