Emerging Markets: Investing with Political Risk

2001 ◽  
Vol 5 (3) ◽  
pp. 175-200 ◽  
Author(s):  
Angela Huang ◽  
◽  
Dimitri Margaritis ◽  
David Mayes ◽  
◽  
...  
Keyword(s):  
Emerging Markets ◽  
Political Risk

scholarly journals The effect of political risk on emerging and developed markets

2021 ◽  
Author(s):  
◽  
Muhammad Tahir Suleman
Keyword(s):  
Exchange Rate ◽  
New Zealand ◽  
Emerging Markets ◽  
Political Risk ◽  
Nominal Exchange Rate ◽  
Developed Markets ◽  
Country Level ◽  
The Usa ◽  
Managed Floating ◽  
The Impact

<p>This thesis consists of three substantive chapters (3, 4, 5) on the impact of political risk on equity and exchange rate returns and their volatilities.  Chapter 3 proposes a framework for predicting market returns and volatility using changes in the country’s political risk. We identify the appropriate lag to to calculate changes over, and how the changes should be included in mean and volatility equations. The level of aggregation of political risk variable is also examined. Analysing 47 emerging and 21 developed markets, we find predictive power primarily for volatility of emerging markets, and recommended use of three political risk components which suitably capture important dimensions of political environment.  In the Chapter 4 we empirically examines the impact of political risk on returns and volatility of individual firms and industry portfolios from New Zealand and Pakistan. The data used in the study consist of 184 firms from New Zealand and 202 firms from Pakistan along with country-level political risk data from the ICRG. As in the , we find in Chapter 3 that the impact of political risk is more on volatility than the returns of firms in both markets. As we expect, the impact of political risk is more on Pakistani firms compared to those in New Zealand. Overall, results from the industry portfolios are according to the hypothesis that political risk impact is different across industries (volatility increase for some industries and decrease for few).  Chapter 5 examine the relationship between political risk variables on the nominal exchange rate return and its volatility. We again investigate developed versus developed markets, and also consider three different exchange rate regimes i.e. floating, managed floating and fixed. This is important to examine the link between political risk and exchange rate because there are two sources of political risk one on either side of the exchange rate. In our analysis, we use the political risk spread between the country of interest and the USA. Overall results reveal that emerging markets are more exposed to political risk compared to developed. Further, the impact of political risk variables is more on the floating exchange rate compared to managed floating and fixed exchange rate as might be expected, since intervention in the market will generally reduce to eliminate the influence of alternative factors. We also find strong evidence that volatility increases more during a period of high political risk and poor economic conditions for emerging markets.</p>

scholarly journals International projects and political risk management by multinational enterprises: insights from multiple emerging markets

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Tahir Ali ◽  
Aurangzeab Butt ◽  
Ahmad Arslan ◽  
Shlomo Yedidia Tarba ◽  
Sniazhana Ana Sniazhko ◽  
...  
Keyword(s):  
Risk Factors ◽  
Risk Management ◽  
Emerging Markets ◽  
Social Exchange ◽  
Multinational Enterprises ◽  
Political Risk ◽  
Analytical Framework ◽  
International Project ◽  
Content Type ◽  
Political Risks

PurposeThis study investigates an under-researched yet fundamental question of how a developed country multinational enterprises (DMNE) perceives and manages political risks when undertaking infrastructure projects in the emerging markets (EMs).Design/methodology/approachThe authors use an abduction-based qualitative research approach to analyze six international project operations of a multinational enterprise originating from Finland in five EMs.FindingsThe findings suggest that the overall nature of political risks in EMs is not the same, except few political risk factors that are visible in most EMs. Consequently, the applied risk management mechanisms vary between EMs, except with few common mechanisms. The authors develop an integrative analytical framework of political risk management based on the findings.Originality/valueThis paper is one of the first studies to identify political risk factors for western MNEs while undertaking international project operations and link them to reduction mechanisms used by them. The authors go beyond the notion of risk being conceptualized at a general level and evaluate 20 specific political risk factors referred to in extant literature. The authors further link these political risk factors with both social exchange and transaction cost theories conceptually as well as empirically. Finally, the authors develop a relatively comprehensive analytical framework of political risk management based on the case projects' findings that combine several strands of literature, including the social exchange theory, transaction cost theory, international market entry, project management and finance literature streams.

The shifting sands above the oil: commercial and legal tools to manage political risk in emerging markets

2014 ◽  
Vol 54 (2) ◽  
pp. 530
Author(s):  
Christopher Flynn
Keyword(s):  
Emerging Markets ◽  
Joint Ventures ◽  
Energy Security ◽  
Shareholder Value ◽  
Political Risk ◽  
Resource Nationalism ◽  
Strategic Approach ◽  
Made In

An increasing number of Australian resources companies are investing in emerging markets, particularly in Africa. Managing an investment in these countries, and the joint ventures invariably formed in them, is an important part of improving shareholder value, raising capital, and managing political risk. These countries typically take a strategic approach to energy security and resource nationalism rather than the more market-focused approach of western states and companies. While the key risk is expropriation, political risk also presents itself in many other ways. During the long term, an investor needs to minimise the likelihood that it becomes cheaper for a government to breach its obligations to the company than it is to comply with them. Doing that requires several important interrelated protections (both legal and commercial) to minimise political risk and ensure that if expropriation does occur, the investor has maximised its chances of recovering its losses. A range of commercial and legal tools—deployable inside and outside of a country—are available to structure these investments, support operations, and minimise political risk in emerging markets. Drawing on his experience advising on energy and resources projects and transactions in more than 50 countries, author Chris Flynn outlines key legal protections to be sought in any contracts with respect to investments made in these countries. He also discusses useful commercial tools to help align the interests of the company, its local partners, and government.

scholarly journals The explanatory power of political risk in emerging markets

2002 ◽  
Vol 11 (1) ◽  
pp. 1-27 ◽  
Author(s):  
Christopher M. Bilson ◽  
Timothy J. Brailsford ◽  
Vincent C. Hooper
Keyword(s):  
Emerging Markets ◽  
Explanatory Power ◽  
Political Risk

Elections and Economic Turbulence in Brazil: Candidates, Voters, and Investors

2006 ◽  
Vol 48 (4) ◽  
pp. 1-26 ◽  
Author(s):  
Anthony P. Spanakos ◽  
Lucio R. Renno
Keyword(s):  
Latin America ◽  
Emerging Markets ◽  
Political Risk ◽  
Economic Indicators ◽  
Policy Preference ◽  
Limited Effect ◽  
Campaign Rhetoric ◽  
Congruence Model

AbstractThe relation between elections and the economy in Latin America might be understood by considering the agency of candidates and the issue of policy preference congruence between investors and voters. The preference congruence model proposed in this article highlights political risk in emerging markets. Certain risk features increase the role of candidate campaign rhetoric and investor preferences in elections. When politicians propose policies that can appease voters and investors, elections may have a limited effect on economic indicators, such as inflation. But when voter and investor priorities differ significantly, deterioration of economic indicators is more likely. Moreover, voter and investor congruence is more likely before stabilization, when an inverted Philips curve exists, as opposed to following stabilization, when a more traditional Philips curve emerges.

scholarly journals The effect of political risk on emerging and developed markets

2021 ◽  
Author(s):  
◽  
Muhammad Tahir Suleman
Keyword(s):  
Exchange Rate ◽  
New Zealand ◽  
Emerging Markets ◽  
Political Risk ◽  
Nominal Exchange Rate ◽  
Developed Markets ◽  
Country Level ◽  
The Usa ◽  
Managed Floating ◽  
The Impact

<p>This thesis consists of three substantive chapters (3, 4, 5) on the impact of political risk on equity and exchange rate returns and their volatilities.  Chapter 3 proposes a framework for predicting market returns and volatility using changes in the country’s political risk. We identify the appropriate lag to to calculate changes over, and how the changes should be included in mean and volatility equations. The level of aggregation of political risk variable is also examined. Analysing 47 emerging and 21 developed markets, we find predictive power primarily for volatility of emerging markets, and recommended use of three political risk components which suitably capture important dimensions of political environment.  In the Chapter 4 we empirically examines the impact of political risk on returns and volatility of individual firms and industry portfolios from New Zealand and Pakistan. The data used in the study consist of 184 firms from New Zealand and 202 firms from Pakistan along with country-level political risk data from the ICRG. As in the , we find in Chapter 3 that the impact of political risk is more on volatility than the returns of firms in both markets. As we expect, the impact of political risk is more on Pakistani firms compared to those in New Zealand. Overall, results from the industry portfolios are according to the hypothesis that political risk impact is different across industries (volatility increase for some industries and decrease for few).  Chapter 5 examine the relationship between political risk variables on the nominal exchange rate return and its volatility. We again investigate developed versus developed markets, and also consider three different exchange rate regimes i.e. floating, managed floating and fixed. This is important to examine the link between political risk and exchange rate because there are two sources of political risk one on either side of the exchange rate. In our analysis, we use the political risk spread between the country of interest and the USA. Overall results reveal that emerging markets are more exposed to political risk compared to developed. Further, the impact of political risk variables is more on the floating exchange rate compared to managed floating and fixed exchange rate as might be expected, since intervention in the market will generally reduce to eliminate the influence of alternative factors. We also find strong evidence that volatility increases more during a period of high political risk and poor economic conditions for emerging markets.</p>

The impact of political risk on the currencies of emerging markets

2021 ◽  
Vol 56 ◽  
pp. 101375
Author(s):  
Marcelo Bittencourt Coelho dos Santos ◽  
Marcelo Cabus Klotzle ◽  
Antonio Carlos Figueiredo Pinto
Keyword(s):  
Emerging Markets ◽  
Political Risk ◽  
The Impact
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