The Emerging Markets Investor's Guide to Country Risk

Systematic risks represent greater threats to investment performance than idiosyncratic factors. In the emerging markets in particular, macroeconomic volatility, political instability, and institutional failures are common-place hazards whose impact on business operations and asset returns can be significant. The involvement of country risk analysis can be limited to a binary "go - no go" decision and the establishment of a sovereign or market rating used for pricing and portfolio construction decisions, and then forgotten until a crisis develops. The incorporation of the details of a country risk assessment into transaction structuring and elements of an early-warning system, for example, is often incomplete or missing altogether. This superficial approach reflects various issues. These can include governance of the investment approval process, knowledge gaps between in-houses investment officers and economists, and the very nature of speculative reasoning about the future path of the economy.

The authors look to address these challenges in three steps: first, distilling the complexities of emerging markets country risk into a manageable set of stylized facts; second, providing tools for incorporating country risk analysis into the principal phases of the investment underwriting and management process; and third, demonstrating the use of these tools through a series of primary case studies and counter-factuals. This book will be the first in the field to explore how unfolding global trends like geopolitical realignment, climate change and the rise of AI may affect investment underwriting in the EMDEs, and will be of interest to investors, economists, and political risk analysts.