Aswath Damodaran explains why country risk is no longer just an emerging market problem

NYU Stern professor Aswath Damodaran argues that country risk can no longer be diversified away, as companies increasingly earn revenue across borders and global equity correlations rise sharply during crises. Following Moody's downgrade of the US from Aaa to Aa1, he revised his implied US equity risk premium to 4.42 percent, deriving a mature-market equity risk premium of 4.20 percent after deducting a 0.22 percent default spread, with an equity-to-bond risk multiplier of 1.55. For Indian companies, he cautions that valuations must reflect country-risk exposure based on operational footprint rather than place of incorporation.