Damodaran Equity Risk Premiums July 2026: Country Risk Is Coming Down

Aswath Damodaran’s July 2026 country risk update has one blunt message: the global equity risk premium map is cooling, but it hasn’t gone flat.

The mature-market equity risk premium in the workbook is 4.17%. The United States equity risk premium is 4.45%. The country table covers 157 markets, and the update notes say the combination of a lower mature-market premium and lower sovereign default spreads pulled equity risk premiums down across the board, according to Damodaran’s July 2026 country premium workbook.

That matters because investors often talk about global valuation as if every market deserves the same discount rate. It doesn’t. A lower base premium helps risk assets. But country risk still changes the return hurdle by a lot.

Key facts at a glance

• Damodaran’s July 2026 workbook uses a 4.17% mature-market equity risk premium and a 4.45% U.S. equity risk premium, according to the workbook.
• The workbook covers 157 country and market entries, based on the extracted country premium table in the July 2026 file.
• The equity volatility multiplier is 1.5545, which means country default spreads are scaled up when Damodaran converts sovereign risk into equity risk, according to the ERPs by country sheet.
• The update notes say the main change is lower base premium plus lower sovereign default spreads, not a sudden end to country risk, according to the Summary of Most Recent Update sheet.

What Damodaran is actually measuring

An equity risk premium is the extra return investors demand for owning stocks instead of a safer asset. In valuation work, it feeds the discount rate. A higher premium means future cash flows are worth less today, even if the business story sounds the same.

The model starts with a mature-market equity risk premium. Then it adds country risk.

That second piece is the point. A company selling into Canada, Germany or Australia should not be valued with the same country-risk add-on as a company tied to Argentina, Egypt, Nigeria or Ukraine. The cash flows may look similar in a spreadsheet. The discount rate should not.

Damodaran’s method uses sovereign ratings, default spreads, and an equity volatility adjustment. In the July 2026 file, the mature-market baseline is 4.17%, while the U.S. premium is 4.45%, because the U.S. still carries a small sovereign default spread in the model, according to Damodaran’s workbook.

That is the same discount-rate logic behind our earlier SpaceX valuation analysis: a valuation can look precise while the cost-of-capital input does most of the work.

The useful takeaway is not that one number is magic. It is that valuation should start with a risk map before it starts with a multiple.

The global risk map still has a steep slope

All numbers in the table below come from Damodaran’s July 2026 country premium workbook. The regional figures use GDP-weighted equity risk premiums from the workbook’s regional weighted-average sheet.

Region or market	July 2026 equity risk premium	What the number says
Australia and New Zealand	4.17%	Close to the mature-market floor
North America	4.43%	Low regional risk, but the U.S. is no longer treated as risk-free
Western Europe	5.24%	Mostly mature, with country dispersion below the surface
Asia	5.80%	Large safe markets pull the average down, but India, Vietnam and Indonesia sit higher
Middle East	6.37%	Higher than developed-market Europe, lower than the stressed regions
Eastern Europe	7.78%	War and sovereign risk still matter for valuation
Central and South America	8.60%	Risk premiums remain meaningfully above the global developed-market floor
Africa	12.59%	High default-spread sensitivity keeps the cost of equity elevated
Caribbean	12.77%	Small-market and sovereign-risk effects dominate the average

This is where the dataset becomes useful. It stops the lazy argument that emerging markets are simply cheap or expensive. Cheap against what hurdle rate?

If a market needs a 12% to 13% equity risk premium, a low multiple is not automatically a bargain. It may be compensation for risk that is already visible in the sovereign market.

The big-country spread is more useful than the headline average

The regional averages are helpful, but the country table is better.

The United States sits at 4.45%. Canada, Australia, Germany, Singapore and Switzerland sit at or near the 4.17% mature-market floor. China is 5.18%. Japan is also 5.18%. India is 7.31%. Brazil is 7.74%. Mexico is 7.31%. South Africa is 8.46%. Turkey is 9.30%. Argentina and Egypt are both 14.87%, according to Damodaran’s country table.

That is the part portfolio managers should care about.

A U.S. software company with global revenue deserves segment-level risk thinking. A miner with Brazilian assets, a bank with Turkish exposure, or a consumer company relying on India growth cannot be valued only off a U.S. discount rate because its listing venue is convenient.

The quarter was a risk-premium relief rally, not a free pass

The update notes say default spreads fell during the quarter. The rating-spread table shows that A1 default spreads moved from 67.1 basis points at March 31, 2026 to 64.7 basis points at June 30, 2026. Baa3 moved from 209.1 basis points to 201.7 basis points. B3 moved from 618.5 basis points to 596.4 basis points, according to the default-spread worksheet.

That is a broad easing signal. It also means some of the valuation support in global equities this quarter came from a lower required return, not just better expected cash flows.

This distinction matters. If a stock rerates because earnings estimates improved, that is one story. If it rerates because the discount rate fell, the gain is more exposed to a reversal in sovereign spreads.

What I would use this for

I would not use the workbook to make a one-day trading call. That is not what it is built for.

I would use it for three things.

First, cross-country valuation sanity checks. If two companies have similar growth but one earns cash flows in markets with much higher country risk premiums, the lower multiple may be rational.

Second, sum-of-the-parts work. Global companies often hide country risk inside one blended multiple. Damodaran’s table gives a cleaner way to assign a different discount rate to each geography.

Third, emerging-market optimism checks. A country can have better demographics, better growth, and a worse cost of equity at the same time. Those are not contradictions. They are the trade.

What this does not tell you

This update does not say emerging markets are uninvestable. It also does not say developed markets are safe.

It does not solve currency risk, governance risk, capital controls, war risk or sector concentration. It does not tell you whether a local stock market is cheap relative to its own history. And it does not replace company-level work.

The workbook gives a country-risk hurdle. The investor still has to decide whether the asset clears it.

FAQ

What are Damodaran equity risk premiums?

Damodaran equity risk premiums are estimates of the extra return investors should demand for owning equities instead of a risk-free asset. The country tables add sovereign and country-risk adjustments to a mature-market baseline, according to Damodaran’s July 2026 workbook.

What changed in the July 2026 update?

The update notes say the mature-market premium and sovereign default spreads both moved lower, which pulled equity risk premiums down across the country table, according to the update notes.

Why is the U.S. equity risk premium above the mature-market premium?

The workbook lists the mature-market premium at 4.17% and the U.S. equity risk premium at 4.45%. The difference comes from the U.S. default-spread adjustment used in the model, according to the ERPs by country sheet.

Which regions have the highest equity risk premiums in the July 2026 file?

On a GDP-weighted basis, the Caribbean and Africa are the highest regions in the workbook, at about 12.77% and 12.59%, respectively, according to the regional weighted-average sheet.

How should investors use country equity risk premiums?

Use them as discount-rate inputs, not as buy or sell signals. They are most useful when comparing companies with similar growth but different country exposures, or when valuing a multinational business by region.