Skip to main content

Political risk in emerging markets

Excerpts from a Financial Times article on rising political risk in emerging markets:

Political risk in emerging markets has risen sharply amid rising expropriation risks, regulatory uncertainty and a worsening credit outlook, according to a report out on Tuesday.

The Alliant Emerging Markets political risk index climbed 5 per cent in the year to February, its biggest since the aftermath of the September 2001 terrorist attacks.

Underpinning the rise were increasing government action against foreign investors in Latin America and central Asia and credit risks in Eastern Europe.


The article goes on to detail the growing trend towards resource nationalization, state expropriation of assets, and contract and regulatory disputes with government. These factors make business all the more treacherous in "emerging" nations.

But given the fact that we've seen clear evidence of these trends unfolding over the past several years, should much of this come as a surprise?

In aiming to quantify risk for their clients, Alliant tries to gauge these concerns through their risk index. As the FT article points out:

Alliant’s political risk index rose to 76.1 from 72.5 last March. Early in 2001 it stood below 68.

What I would be interested to know is whether the risk index is a forward-looking indicator, or more of a (realistically speaking) backwards-looking indicator, like the VIX.

In other words, is the index rising or falling on the back of events that are currently taking place or have already occured, or will it be able to accurately forecast political risks ahead?

Popular posts from this blog

Nasdaq credit rating junked.

S&P cut Nasdaq's credit rating to junk status citing debt burdens and its questionable strategy to buy a controlling interest in the London Stock Exchange. Financial Times reported that the exchange's counterparty credit & bank loan rating were lowered fromm BBB- (lowest investment grade rating) to BB+. The change will increase Nasdaq's borrowing costs should it wish to pursue aquisition targets. For an earlier look at the exchange consolidation trend that brought about Nasdaq's push for a stake in the LSE, please see "Exchange fever" .

Clean Money - John Rubino: Book review

Clean Money by John Rubino 274 pages. Hoboken, New Jersey John Wiley & Sons. 2009. 1st Edition. The bouyant stock market environment of the past several years is gone, and the financial wreckage of 2008 is still sharp in our minds as a new year starts to unfold. Given the recent across-the-board-declines in global stock markets (and most asset classes) that have left many investors shell-shocked, you might wonder if there is any good reason to consider the merits of a hot new investment theme, such as clean energy. However, we shouldn't be too hasty to write off all future stock investments. After all, the market declines of 2008 may continue into 2009, but they may also leave interesting investment opportunities in their wake. Which brings us to the subject of this review. John Rubino, author and editor of GreenStockInvesting.com , recently released a new book on renewable energy and clean-tech investing entitled, Clean Money: Picking Winners in the Green Tech Boom . In Clean ...

Seth Klarman: Margin of Safety (pdf)

Welcome, readers! Signup for free email updates at the Finance Trends Newsletter . Update: PDF links removed due to DMCA notice. Please see our extensive Klarman book notes below. New visitors, please check the Finance Trends home page for all new posts. Here's something for anyone who has been trying to get a look at Seth Klarman's now famous, and out of print, 1991 investment book, Margin of Safety .  My knowledge of value investing is pretty much limited to what I've read in Ben Graham's The Intelligent Investor (the book which originally popularized the investment concept of a "Margin of Safety"), so check out the wisdom from Seth Klarman and other investing greats in our related posts below. You can also go straight to Ronald Redfield's Margin of Safety book notes .    Related posts: 1. Seth Klarman interviews and Margin of Safety notes     2. Seth Klarman: Lessons from 2008 3. Investing Lessons from Sir John Templeton 4. ...