Political risks are also opportunities
Spats like Argentina’s nationalisation of YPF throw up bargains for investors
Far-fetched? Perhaps. But in a sense, it has happened in the corporate sphere – and it is something that could ultimately leave a mark on your investments.
Imagine a government official knocking on your door to tell you something you own – your car or your house – is no longer your property.
Argentina’s recent efforts to nationalise the country’s largest oil company, YPF, may not have occupied much time on the news channels, yet we ignore it at our peril. The efforts of president Cristina Kirchner and her government to renationalise South America’s largest oil company is a matter of genuine concern – not least to Repsol, the Spanish conglomerate that bought a majority stake in it when it was privatised in 1999.
Threats of retaliation from Spain have already materialised. Condemnation has appeared from other countries as well. But this expropriation has not come out of the blue. Only this year Argentina entered into a period of fiscal austerity, one which the government refers to euphemistically as ‘fine tuning’ but which seems to be leaving its mark on the population.
Having already nationalised private pension funds and renationalised the country’s flagship airline back in 2008, Ms Kirchner’s government is unlikely to back down in the face of international criticism. And if her initiative is seen to achieve its aims, might other embattled countries follow suit?
It’s a familiar enough theme – politicians fuelling populist sentiment when times are hard – and not just confined to faraway shores. One need only look at the record level of support for the far-right National Front in France’s presidential election, at a time when unemployment is at a 12-year high.
Meanwhile, and on the other side of the political spectrum, campaign pledges from the newly elected French president, the socialist François Hollande, include a renegotiation of the budget discipline pact imposed on the eurozone last December. The very idea of this was enough to make markets quiver.
There’s little doubt that the current age of austerity has increased the likelihood of sudden political shocks. Few could have imagined the abrupt fall of the government of the Netherlands – one of the steadier economic performers of the eurozone – when a dispute over budget cuts led to the collapse of the ruling parliamentary partnership.
Nor is political risk confined to fiscally constrained countries. In Russia, Vladimir Putin faces accusations of reneging on campaign pledges to make the political process more democratic. And we have surely not seen the last of the upheavals in the Arab world, as anyone who followed the recent Bahrain Formula 1 Grand Prix might suspect.