What is Geopolitical risk?
The risk that as relationships between countries deteriorate they will take their hostilities out on a corporation you have an investment in.
How this risk plays out in the real world
Nov 22, 2018: US urging allies to drop China’s Huawei
Nov 17, 2016: Microsoft Isn’t Feeling any Thaw
Aug 07, 2014: Russia Retaliates : Imposing Ban on EU, US Food Imports
Jun 26, 2014: Germany gives Verizon the boot over NSA spying scandal
Mar 10, 2014: For Fedex in China, It’s Hurry Up and Wait
Connection to other risks
Geopolitical risk might be confused with Country risk. Country risk has to do with how a specific country governs itself and the businesses that operate within its borders. Geopolitical risk is about how countries target specific corporations because they want to punish the countries in which those corporations are based.
How investors can manage Geopolitical risk
- Don’t invest in a corporation that derives a significant portion of its sales and profits from countries that are hostile to the corporation’s home country.
A final word
In June of 2013, a contract worker for the NSA named Edward Snowden began leaking documents that showed the extraordinary extent of data collection and international spying being conducted by the NSA. The shock reverberated around the world as it was confirmed that the NSA was spying on allies and enemies alike, including the personal email accounts of world leaders. Countries began evaluating their information and technology infrastructure, much of which is produced by U.S.-based companies. The headlines above demonstrate how they are reacting.