FP Article 15.14
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Investment Risk -
Political Risk
by Rajen Devadason
Politics is not the art of the possible. It
consists in choosing between the disastrous and
the unpalatable.
John Kenneth
Galbraith
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Most
people reading this are unlikely to
be too enamoured of politics. It has
become a globally recognised and
deeply entrenched pastime to deride
the ruling party of whichever
country the lambasting pundits
happen to reside in.
Therefore, it
shouldn't surprise you to realise
there exists a very specific type of
investment risk called political
risk!
It relates to the
possibility that the politicians
might do something terribly nasty
against the investment community.
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Still, to be fair to the politicians, one of the
most common forms of political risk, a military
coup, has nothing to do with them... technically
speaking.
Other forms of political risk
that are precipitated by politicians, however,
include generally negative nationalistic moves
upon a national economy that cause investments
in the affected country to rapidly depreciate.
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This is an article explaining
political risk. I hope you enjoy
reading it. But if it isn't what
you're looking for, you're welcome
to search for something that better meets
your needs. Thank you for allowing
me to serve you.
Rajen Devadason |
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Prime
examples of such moves might be the lightning nationalisation
processes some countries have enacted in the
past.
The international investing
community is generally savvy enough to
accurately identify sweeping politically-driven
moves as being comprehensively lousy for
investments. Yet sometimes this well-heeled,
well-connected group can make mistakes during
its hurried evaluations.
For instance, between 1998 and
2005 my own country, Malaysia, enacted capital
and currency controls that were initially viewed
negatively. Very negatively!
When they were initiated by then
Prime Minister Mahathir Mohamad on September 1st
1998, during the excruciatingly painful Asian
Meltdown of 1997-1998, he was perceived as
maliciously engineering a textbook
example of political risk exploding in the
collective face of unsuspecting international
investors.
But the move brought about
currency stability, falling interest rates,
rising stock prices and economic strength! In
the ensuing years, more and more of those early
detractors have chosen to make public statements
validating the ex-PM's prescription for
Malaysia.
Still, that example is perhaps
the exception that proves the rule! You see,
most other instances of identified political
risk do not result in such comprehensive U-turns
of pundit consensus.
By and large, countries deemed to
be hotbeds of political risk become - and stay -
economic pariahs for a long, long, long time.
If you'd like to continue to learn more about
other types of investment risk, here's
additional information for you...
15 Types of Investment Risk
(OR, to sign up for a
FREE
16-lesson eCourse on Investment Risk, please
click here.)
1.
Borrowing Risk
2.
Company Risk
3.
Credit Risk
4.
Currency Risk
5.
Diversification Risk
6.
Industry Risk
7.
Inflation Risk
8.
Interest Rate Risk
9.
Liquidity Risk
10.
Lost Opportunity Risk
11.
Manager's Risk
12.
Market Risk
13.
Market Timing Risk
14. Political Risk
15.
Prepayment Risk
© Rajen Devadason
