Where would you want to invest your money if the GDP were your only indicator to make your decision? I built a portfolio model using GDP of countries and the Markowitz' Modern Portfolio theory. The results that I got were expected. For a portfolio return of 4% in the efficient frontier, India and China have to have a basket participation of 24% together. It is not a big surprise. Some developed countries also show important participation. If the investor wants higher returns (7%) and higher risk, the portfolio participation of China and India have to increase to 62%.
Technical details: I applied what I learnt in Spreadsheet Modelling for Finance. For the GDP information, I got the information from the WEO database (link). I calculated the efficient frontier using solver tables (link) and for the computation of big matrices I installed this add-in (link). The link to get my excel file of the calculation is below. Enjoy!
Portfolio Return of 4%
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