More often than not, we invest in businesses, such as credit repair companies, in nations based on their political and financial climate. And we usually base our analysis from what we hear from the news.
According to the author of “Fusion Economics: How Pragmatism Is Changing the World”, Laurence Brahm, “Don’t listen to CNN or Fox News. When you hear the major media networks introduce a nation’s political situation, think in counterintuitive way. Try to find out what’s really happening on the ground. It may surprise you and offer a great investment opportunity.”
Brahm is an expert in international politics and investments. In fact, he cut the first deals for various multinational corporations, such as Bayer and Kodak, to enter China. And he definitely isn’t alone in his thinking.
Michael Driscoll, a visiting professor and senior executive at Adelphi University’s Robert Willumstad School of Business in Garden City, New York, said, “A challenging situation like Greece’s or Russia’s shouldn’t preclude an investor from deciding to invest. They have to be aware of the risks. But keep in mind that high risk often translates to high reward if the investment plans out.”
There are several principles and pointers that you should consider before investing in foreign countries according to their political climate.
Diversity tempers risk.
This is the perspective of the Master of Science in Finance program coordinator and professor for the Master of Business Administration and Master of Science in Finance programs at New England College of Business in Boston, Mr. Ned Gandevani. He said, “To reduce exposure, investors should allocate a small portion of their funds to international markets. More important, they should diversify by investing in international mutual funds and exchange-traded funds.”
View corruption with extreme caution.
According to Edinaldo Tebaldi, an assistant economics professor at Bryant University in Smithfield, Rhode Island, “Widespread corruption among government officials may not affect the returns to investment in the short term. But it reduces overall efficiency, increases transaction costs and has the potential to be the catalyst of severe political and economic crises.”
Know the character of the nation.
American investors usually make a mistake of expecting western values from other countries. “Japan is a case in point. Japan is hamstrung by certain cultural legacies. These include a largely homogenous society that doesn’t appear to welcome immigration or full participation of women in the workforce. Unless these characteristics change, the labor force won’t be able to support economic growth to the extent that would otherwise be possible,” says the director of asset allocation strategy for People’s United Wealth Management in Bridgeport Connecticut, Albert Brenner.
A rule of thumb is the rule of law.
Some countries do not even know anything about the rule of law. In fact, this holds true in terms of rights to property. According to Don Shelly, a finance professor at Southern Methodist University’s Cox School of Business in Dallas, “Nationalization of foreign company assets has occurred more often, and most recently in Russia and Venezuela. Governments can impose fines, force divestitures, and pass legislation that favors domestic producers and punishes foreign ones.”