Assessing it from a results point of view and what I think each side can do:
Australia (along with India) is the hardest team to beat at home IMO, and indisputibly the best side in the Southern Hemisphere. In Asia however we've been awful, and we haven't won an away Ashes since 2001. As for their overall ability, our bowling is pretty damn strong at full fitness, but our batting has been exposed dramatically away from home. I think Shady Slim summed it up best when he say we're the best side in the world when given an inch, but when not we struggle (well using his analogy anyway).
England have risen in the last 12 months, having beaten South Africa away from home and didn't disgrace themselves in the UAE. Their home results also remain solid. Away from home I feel like they have the most going for them with South Africa declining, but they're not as dominant as Australia, India or Pakistan at home, and their side has a number of below-average Test cricketers (which is covered by the amount of players who have pretensions of being all-rounders, admittedly).
India are very tough to beat at home, and their away performances haven't been completely awful in recent times either - only in England were they disgraced and they still won a Test there. So they have a pretty good case at #1 That said, I think their balance will give them some issues against the stronger sides and I also question Kohli's approach somewhat.
Pakistan haven't played a lot away from the UAE recently, but you have to be optimistic about their chances given they just drew with England. And their UAE performances have been great. Add that there's few discernable weaknesses besides their opening pair (which may be getting close to being fixed), and you have a strong side, one good enough to be #1.
As for the others:
South Africa were first this time last year, but you have to wonder whether they're still that good after being embarrassed by India and losing to England at home. Their batting looks worrying sans Kallis and Smith, and their bowling looks weaker without Steyn. While him coming back will help, it's not a young side and you have to wonder whether political factors will hurt them long-term.
New Zealand looked good about 18 months ago, but since the England series I think they've gone backwards. They were beaten pretty badly by Australia and didn't completely dominate against Sri Lanka. Had some good performances in Asia (drawing with Pakistan and Sri Lanka), but I'm somewhat skeptical they'll win there now. Maybe they'll improve if/when Southee and Boult get back to their best, but will they?
Sri Lanka are still a pretty decent at home, but away from home they'll struggle against any of the Top 6. I think they'll fall to West Indies level when Herath retires, although if this series tells us anything he's still got some fight left.
West Indies and Bangladesh are just ****. Maybe the Banglas will improve at home with a proper chance though, it's been a while since they played Test cricket. Zimbabwe probably don't deserve Test status.
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So if I had to pick a #1, would go with Pakistan for now, with South Africa as the elephant in the room for if/when Steyn gets an extended run with a fit body again.