What countries are undervalued?

At the AEAs Tyler and I would ask our job candidates what countries do you think are currently overvalued and what countries do you think are currently undervalued (in terms of growth prospects, reasons for investment optimism etc.)  Many candidates were surprised by this question.

Of those able to give an answer, China was repeatedly picked as overvalued as to a lesser extent was Argentina.  Good reasons were given for both cases.  Fewer people were able to articulate a case for undervalued nations.  My own pick for undervalued nation was Germany while Tyler chose Mexico.  No one thought that Iran, Iraq or Saudia Arabia was undervalued but these are the surprising picks of
Glenn Yago and Don McCarthy writing in today’s Wall Street Journal (and available online here).  Yago and McCarthy point primarily to rising stock markets but also increased FDI:

stock markets rose over 30% in 2004 and represent a market
capitalization of $470 billion. This has been accompanied by a surge in
regional property values and a higher number of tourists. The main
Egyptian equity index has increased 165%, while that of Saudi Arabia
has gone up by 158%. The Saudi market’s stellar performance is
especially striking given the great amount of attention paid at the
moment to that country’s security problems. Israel’s leading index has
risen by 32%, the benchmark index of Kuwait’s exchange by 73%, Jordan’s
by almost 60%, and that of the United Arab Emirates by 110%.

What countries do you think are overvalued or undervalued and why?  I have opened the comments section up for this post.


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