Naz Naini gives an overview of what country risk is, why it's relevant for your business and our services in this area.
So what is country risk? It is a measure of risk faced by businesses when investing in sovereign states and it reflects a number of factors including:
It is effectively the risk of those low probability, high impact events that can lead to significant losses in the value of investments. Now more than ever these types of risk are at the forefront of many investors thinking due to a number of major economic and geo-political events, such as the Eurozone sovereign debt crisis and also events in the Middle East and North Africa, all of which have led to previously stable countries becoming much riskier.
Country risk is changing all the time and in some cases we have seen a complete reversal of historical trends, for example, in 2008 Brazil's risk rating was higher than Portugal. In recent years we have seen a complete reversal of this trend. For certain countries we have also seen a major disconnect between the country risk based on actual bond yields and those implied by the risk ratings. So for all of these reasons measuring and accounting for country risk whether it be for international investment appraisals or valuation of multi-national companies is more essential and more challenging than ever before.
Our economics team has been analysing and measuring country risk for 15 years and covers over a 180 sovereign states. For more information about country risk and our services please take a look at our website.
Our interactive map, above, shows just how much country risk has evolved over the past decade. Some countries have become much riskier to operate in, whilst others have seen their risk levels fall. An analysis of country risk trends can help organisations identify these risks and opportunities early on in their planning processes.
For UK companies that have international operations or are considering opportunities abroad, managing and accounting for country risk will be a key consideration. Our country risk service can help companies to quantify and manage such risks in order to make better business decisions.
Our country risk service can help companies to quantify and manage such risks in order to make better business decisions.
We calculate Country Risk Premiums (CRPs) for 187 sovereign nations using an economic model that we have developed since 1998. Our model uses a range of inputs in generating CRPs, including reliable sources of credit and risk ratings and sovereign bond information.
For more information, please contact a member of the team.