Interest Coverage Screen Tested on 14 Global Exchanges: Where Debt Safety Matters Most
We ran the same interest coverage screen on 14 exchanges from Bangkok to Tokyo to New York, each measured against its local benchmark. All 14 beat their local market. BSE (India) led at 28.8% CAGR, +17.7% vs Sensex. Switzerland flipped from underperformer (vs SPY) to +4.3% vs SMI.
We ran the same interest coverage screen on 14 exchanges across 12 countries, from Bangkok to Tokyo to New York, covering 25 years of quarterly data. The results range from 5.4% CAGR (Korea) to 28.8% (India/BSE). All fourteen exchanges beat their local benchmark. The pattern is clear: debt-servicing ability matters most in markets where credit risk is highest.
Contents
- Method
- Results Summary
- Three Tiers of Performance
- Tier 1: Strong Alpha (12%+ excess vs local)
- Tier 2: Solid Alpha (3-7% excess vs local)
- Tier 3: Modest Alpha (0-2% excess vs local)
- What Explains the Spread?
- 1. Market Efficiency
- 2. Credit Risk Environment
- 3. Universe Composition
- Risk-Return Tradeoffs
- Excluded Exchanges
- Limitations
- Takeaway
Method
Screen: Interest coverage > 5x, D/E between 0 and 1.5, ROE > 8%, market cap above local-currency equivalent (~$200-500M USD per exchange) Period: 2000-2025 (25.8 years, 103 quarterly rebalances) Benchmark: Local index per exchange (Sensex for India, DAX for Germany, TSX Composite for Canada, etc.). SPY used where no local benchmark is available. Portfolio: Top 30 by coverage, equal weight, quarterly rebalance Transaction costs: Size-tiered model (0.1%-0.5% depending on market cap) Cash rule: Hold cash if fewer than 10 stocks qualify
Same code, same filters, same methodology across all 14 exchanges. The only variable is the stock universe.
Full methodology: backtests/METHODOLOGY.md
Results Summary
| Exchange | CAGR | Benchmark | Excess vs Local | Sharpe | Max DD | Cash | Avg Stocks |
|---|---|---|---|---|---|---|---|
| BSE (India) | 28.8% | Sensex 11.1% | +17.7% | 0.627 | -49.6% | 17% | 25 |
| SET (Thailand) | 20.2% | SET Index 3.8% | +16.4% | 0.062 | -47.7% | 17% | 28 |
| HKSE (Hong Kong) | 17.2% | Hang Seng 1.8% | +15.4% | 0.114 | -61.9% | 1% | 22 |
| NSE (India) | 17.3% | Sensex 11.1% | +6.2% | 0.469 | -53.5% | 17% | 25 |
| STO (Sweden) | 14.6% | OMX Stockholm 30 3.2% | +11.4% | 0.549 | -51.1% | 17% | 26 |
| TSX (Canada) | 11.5% | TSX Comp 5.1% | +6.4% | 0.232 | -51.6% | 4% | 24 |
| US (NYSE+NASDAQ+AMEX) | 9.1% | S&P 500 8.0% | +1.0% | 0.356 | -43.5% | 0% | 26 |
| SHH (Shanghai) | 7.8% | SSE Comp 4.2% | +3.6% | 0.180 | -60.4% | 0% | 22 |
| LSE (UK) | 6.4% | FTSE 100 1.4% | +5.1% | 0.149 | -39.5% | 0% | 15 |
| SIX (Switzerland) | 6.4% | SMI 2.1% | +4.3% | 0.301 | -54.7% | 1% | 18 |
| JPX (Japan) | 6.0% | Nikkei 3.4% | +2.6% | 0.345 | -53.9% | 6% | 27 |
| XETRA (Germany) | 6.0% | DAX 5.1% | +0.8% | 0.196 | -66.5% | 0% | 20 |
| TAI (Taiwan) | 5.6% | TAIEX 4.4% | +1.2% | 0.248 | -51.9% | 20% | 27 |
| KSC (Korea) | 5.4% | KOSPI 4.8% | +0.6% | 0.162 | -34.9% | 29% | 27 |
Three Tiers of Performance
The results cluster into three clear groups.
Tier 1: Strong Alpha (12%+ excess vs local)
BSE (India): 28.8% CAGR, +17.7% vs Sensex India's BSE is the standout result in this dataset. Among large-cap Indian companies (market cap ₹20B+, roughly $240M USD), the interest coverage screen produced a Sharpe ratio of 0.627, the highest of all 14 exchanges. Cash periods: 18/103 (17%), concentrated in the early 2000s when Indian financial data was sparse.
HKSE (Hong Kong): 17.2% CAGR, +15.4% vs Hang Seng The Hang Seng returned just 1.8% over this period, making Hong Kong's +15.4% excess the second-largest gap. The screen works in Hong Kong's mixed market of mainland-linked and local companies, but the drawdown (-61.9%) is real.
SET (Thailand): 20.2% CAGR, +16.4% vs SET Index Thailand's raw CAGR is second only to India. The Sharpe of 0.062 reflects high total volatility, but the Sortino says most of that volatility is positive. Cash periods: 17/103 (17%).
Tier 2: Solid Alpha (3-7% excess vs local)
NSE (India): 17.3% CAGR, +6.2% vs Sensex BSE and NSE overlap in listed companies. The difference (28.8% vs 17.3%) comes from slightly different symbol coverage. BSE tends to include more mid-cap industrial and financial names that responded well to the coverage filter. Both confirm the India story.
STO (Sweden): 14.6% CAGR, +11.4% vs OMX Stockholm 30 The best risk-adjusted performer outside India. Sharpe of 0.549. Sweden's well-governed, export-oriented companies respond well to balance sheet quality screening. Cash periods: 17/103 (17%). The OMX Stockholm 30 returned 3.2% over the same period, making Sweden's excess one of the largest in developed markets.
TSX (Canada): 11.5% CAGR, +6.4% vs TSX Composite Canada with only 4 cash periods (4%). The resource-heavy TSX includes many cyclical earners. Coverage ratio distinguishes financially resilient companies from those dependent on commodity cycles.
LSE (UK): 6.4% CAGR, +5.1% vs FTSE 100 The UK screen produced the shallowest drawdown of any exchange at -39.5%, and a 64.1% win rate (the highest in the sample). The FTSE 100 returned just 1.4% over this period, so the screen's +5.1% excess is meaningful. The smaller qualifying universe (15.3 avg stocks) limits diversification, but the consistent outperformance across regimes is notable.
SHH (Shanghai): 7.8% CAGR, +3.6% vs SSE Composite Shanghai's main board is dominated by large state-owned enterprises. Coverage ratios don't reflect the same risk dynamics for SOEs as they do for private companies. Zero cash periods, but modest returns. Against the SSE Composite (4.2%), the screen still adds value.
JPX (Japan): 6.0% CAGR, +2.6% vs Nikkei 225 Japan's interest coverage screen produced 6.0% CAGR with a 0.345 Sharpe, the best Sharpe among the lower-CAGR exchanges. The screen averaged 27.4 stocks per quarter with only 6 cash periods. Against the Nikkei (3.4%), the +2.6% excess is modest but consistent, with a 57.3% win rate.
Tier 3: Modest Alpha (0-2% excess vs local)
US (NYSE+NASDAQ+AMEX): 9.1% CAGR, +1.0% vs S&P 500 The most efficient market in the sample. Balance sheet quality is largely priced in. The screen adds modest value, consistent over 25 years but not enough to drive a portfolio.
TAI (Taiwan): 5.6% CAGR, +1.2% vs TAIEX Taiwan's tech-heavy exchange doesn't reward conservative balance sheet screening. TSMC and the supply chain are capital-efficient but not the kind of companies the coverage filter selects for. The 21% cash period rate also drags returns. Still edges out the TAIEX (4.4%).
XETRA (Germany): 6.0% CAGR, +0.8% vs DAX Positive excess, but the deepest drawdown of any exchange at -66.5%. German industrial companies that passed the screen still suffered heavily in the GFC and European debt crisis. The DAX itself returned 5.1%, so the margin is thin.
KSC (Korea): 5.4% CAGR, +0.6% vs KOSPI The weakest performer. Korea's chaebol-heavy market filtered heavily when applying an appropriate mid-cap threshold (₩500B, roughly $370M USD), leaving few qualifying stocks. 31 of 103 quarters were in cash. When invested, returns were modest but still edged out the KOSPI (4.8%).
SIX (Switzerland): 6.4% CAGR, +4.3% vs SMI Switzerland beats its local SMI benchmark (which returned 2.1% over the period) by 4.3% annually. The earlier benchmark comparison used SPY, which made Switzerland appear as an underperformer at -1.6%. Against the local Swiss index, the screen is solidly positive. Win rate: 64% of quarters, the highest in the dataset. Swiss companies are generally well-capitalized, which limits the spread between qualifying and non-qualifying stocks, but the signal still works. The smaller universe (18 avg stocks) and -54.7% max drawdown are the main cautions.
What Explains the Spread?
The 23-point spread from India/BSE (28.8%) to Korea/KSC (5.4%) isn't random. Three factors explain most of the variance across all 14 exchanges:
1. Market Efficiency
More efficient markets (US, Switzerland) price balance sheet quality accurately. Less efficient markets (Thailand, India) misprice it. The screen captures this mispricing as alpha.
2. Credit Risk Environment
In markets where corporate defaults are more common or where credit access is less reliable, companies that can service debt are genuinely different from those that can't. Thailand, India, and Hong Kong have higher baseline credit risk than Switzerland or the US. The coverage screen separates survivors from casualties.
3. Universe Composition
Exchanges with more diverse companies (by sector, size, leverage level) give the screen more room to differentiate. Taiwan and Switzerland have relatively concentrated markets where the screen finds less variance.
Risk-Return Tradeoffs
CAGR doesn't tell the whole story. Here's the Sharpe ratio vs CAGR:
| Exchange | CAGR | Sharpe | Max DD |
|---|---|---|---|
| BSE | 28.8% | 0.627 | -49.6% |
| STO | 14.6% | 0.549 | -51.1% |
| NSE | 17.3% | 0.469 | -53.5% |
| US | 9.1% | 0.356 | -43.5% |
| JPX | 6.0% | 0.345 | -53.9% |
| SIX | 6.4% | 0.301 | -54.7% |
| TAI | 5.6% | 0.248 | -51.9% |
| TSX | 11.5% | 0.232 | -51.6% |
| XETRA | 6.0% | 0.196 | -66.5% |
| SHH | 7.8% | 0.180 | -60.4% |
| KSC | 5.4% | 0.162 | -34.9% |
| LSE | 6.4% | 0.149 | -39.5% |
| HKSE | 17.2% | 0.114 | -61.9% |
| SET | 20.2% | 0.062 | -47.7% |
India (BSE) leads on both return and risk-adjusted return, with the highest CAGR (28.8%) and highest Sharpe (0.627). The drawdown (-49.6%) is moderate for an emerging market screen.
Sweden (STO) is the second-best risk-adjusted performer at Sharpe 0.549, CAGR 14.6%, +11.4% vs OMX Stockholm 30. If you want one international exchange for this screen outside of India, Sweden makes the strongest case.
Thailand and Hong Kong have strong raw returns but poor Sharpe ratios due to extreme volatility. Investors should expect significant drawdowns, though the excess over local benchmarks (+16.4% and +15.4%) is substantial.
Korea (KSC) has the shallowest drawdown (-34.9%) but the lowest CAGR and second-worst Sharpe. The 29% cash period rate keeps it out of the market frequently. It still edges out the KOSPI, but barely.
Excluded Exchanges
Three exchanges were excluded from this comparison due to data quality issues:
| Exchange | Issue |
|---|---|
| SHZ (Shenzhen) | Data artifacts in adjusted prices produce unreliable return series. |
| ASX (Australia) | Broken adjClose data. 314 stocks have >1,000x price ratios from incorrect stock split adjustments. |
| SAO (Brazil) | Same adjClose issue. 20+ stocks with extreme price ratios produce artificial returns. |
JPX (Japan) and LSE (UK) were previously excluded due to missing FY financial data but have since been added to the data pipeline and are now included in this comparison. SHZ, ASX, and SAO remain excluded due to price data quality issues documented in the strategy README.
Limitations
Benchmark selection. Each exchange is compared to its local index (Sensex, DAX, KOSPI, etc.), which gives a more accurate picture of alpha. SPY is used where no local benchmark is available (Thailand, Sweden). This means excess returns aren't directly comparable across exchanges, since each benchmark has different return characteristics.
Currency effects. Returns are in local currency terms as stored in the database. Currency fluctuations vs USD aren't captured.
Cash periods reduce comparability. Exchanges with 17-30% cash periods (BSE, NSE, KSC, TAI) had less time invested. Their CAGR reflects a blend of market returns (during cash) and screen returns (during invested periods).
Survivorship bias. FMP data includes delisted stocks in most exchanges, but coverage varies. Some emerging market exchanges may have more survivorship bias than US data.
Small universe. SIX (Switzerland) averaged 18.5 stocks. With a 30-stock cap, that's near full participation, reducing the signal's selectivity.
Takeaway
Interest coverage screening works globally. All fourteen exchanges beat their local benchmark, but the alpha varies enormously by market. The screen produces its strongest results in markets with higher credit risk and lower pricing efficiency: India, Thailand, Hong Kong, Sweden. In highly efficient markets like the US and Switzerland, the signal adds modest but consistent alpha.
India's BSE stands apart. 28.8% CAGR, +17.7% over Sensex, Sharpe 0.627. Sweden offers the second-best risk-adjusted profile without the emerging-market volatility at +11.4% vs OMX Stockholm 30.
The US sits in the middle of the pack at +1.0% over the S&P 500, confirming that balance sheet safety is largely priced into the world's deepest market. Switzerland, previously the only exchange using SPY as benchmark, beats its local SMI by 4.3% annually.
If you're implementing this screen internationally, focus on markets where credit risk matters and where the gap between financially healthy and financially stressed companies is widest. That's where the screen earns its keep.
Data: Ceta Research (FMP financial data warehouse), 2000-2025. Full methodology: METHODOLOGY.md. Past performance does not guarantee future results. This is educational content, not investment advice.
