Political Risk and its Impact to Country’s Economy

Political Risk and its Impact to Country’s Economy

International investing is one of the effective ways any investor can do who wants to grow and diversify their portfolio. So if for example that you are into propane business and found a company that sells such product and other accessories like filtro prensa, buying shares from that company overseas is a good idea. On the other hand, there’s usually greater level of risks associated to it than domestic investing. Most of the risks are unique only to international investing and might be caused by a number of factors such as:

  • Unrest
  • Conflicts
  • Changes in internal politics and;
  • Changes in international policies between nations

One of the critical factors that are faced by international investors would be political risks. In most of the frontier and emerging markets, the country’s political landscape is impacted more than influences within the nation in question. For instance, Chinese debt issues, conflicts in the Middle East, American policies and the likes are all variables that can affect opportunities for international investment.

What exactly is Political Risk?

Simply speaking, political risks are the kind of risks that are connected with any changes that occurred or will occur within the business laws, investment regulations and policies of the country. Other known factors that influence this may include international relationships and several situations that might have influence the economy of the country.

Typical example of a political risk is countries that are battling political upheaval. There are numerous nations that are going through changes in perspectives and social attitudes as of late which then cause changes in politics, causing unrest and even political movement.

Another new to the scene is the technology. The rise in smartphone ownership made almost every citizen who has a smartphone to be an instant journalist, photographer or source of information. Confidence in companies and investments as well as countries could be shattered in seconds once a video containing false information is uploaded online.

Impact of Political Risk

The rise in political risk has plenty of impacts on the country and of course, to companies that are operating within its sovereign. The most noticeable would be the decline in equity prices. Countries that are facing high political risk factors are experiencing reduced foreign direct investment which may destabilize the country’s economy.