Country Risk - A Game-Changer?
If you invest in publicly traded equities in general, and more specifically publicly traded resource equities, I think Country Risk as ever more important in what I see to be the an increasingly fragile current world and country specific economic condition.
I believe Country Risk will become increasingly important as both developed and developing country populations become more and more demanding on their governments through protests and disruptive activities. Clearly, or so it seems, technology and the internet are leading to more 'have-nots' learning what the 'haves' have, becoming more resentful of the widening differences in those two positions, and being able to effectively organize using cell phones and other internet communication devices.
Because of my belief in likely prospective Country Risk escalation, and because many publicly traded Canadian Mining and Oil & Gas Companies have their principal operations in a large number of developing and developed countries, we soon will be introducing a Country Risk research capability to Subscribers of StockResearchPortal.com. To put the 'Country Diversification' in perspective, the approximate 1,550 companies for whom we currently offer research data collectively operate in over 90% of the world's just over 190 countries.
Two recent articles to some degree highlight Country Risk issues:
'Exclusive: Newmont suspends work at Peru gold mine' - reading time 1 minute. While perhaps an indicator of things to come on a bigger scale in both developed and developing countries, but not in isolation necessarily a 'big deal', the article reports that Newmont's Peruvian gold mine Yanacocha - which is said to produce 1.6% of the world's current gold output - has temporarily suspended work because protests are blocking roads. More importantly, the article says that differences between Peruvian rural communities and resource companies have delayed about 200 mining and oil & gas projects. This is circumstances where Peru recently elected a socialist-leaning President, and where Peru has recently increased taxes to be paid by foreign resource companies; and,
a recent article says that Venezuela's government under President Hugo Chavez has nationalized 459 businesses so far in 2011, out of a total of an estimated 1,045 Venezuelan business that have been nationalized in the 13 years since Chavez became President. See 'Chavez's Venezuela seizes record number of firms' - reading time 4 minutes. Once again I think this is simply something to take note of in the context of Country Risk generally, as Chavez and his Government's actions over the past many years have been both well known and at the extreme end of things. However, that is not to say that in the developing countries another Chavez won't emerge.
unlike companies that can 'pick up and leave' if they don't like the political, societal, or economic direction of a country they operate in, resource companies can't simply 'pack up their tents' and go home with their assets all or partially intact;
mining and oil & gas projects require significant amounts of both time and capital, both of which are investments in high risk/high reward immovable assets - where Country Risk clearly is a risk that requires fact-specific and time-specific ongoing monitoring;
country populations in both developed and developing countries are becoming increasingly empowered through technology and as a result of observing the results of societal uprisings in other countries;
while future political change in any given country is unpredictable in terms of what will happen, it is entirely predictable that change will occur over time; and,
Nobody seems to be focusing on country risk in these changing economic and societal times in the context of public company operations, and if they are very few are writing about it in the context of investing or trading. This says to me that few have yet to 'cotton on to it'. If I am right in this, our 'about to be introduced' new Country Risk Feature ought to give StockResearchPortal.com Subscribers 'food for thought' and insight that others may not have to the same degree.
I suggest that if you invest or trade in mining or oil & gas equities that you start to think about, and focus on, Country Risk in a big way. This is almost certainly an area that you will have to research for yourself and reach your own conclusions on. This is because, at least as I see things, neither Investment Bankers or Company Managements typically will tend to will discount or understate Country Risk in their analysis and pronouncements until it hits them square over the head.