Political Risk
Categories: Investing
It's one of the dials investors turn when they're thinking about risk in investing, particularly as it relates to third world countries, emerging markets, countries with unstable, corrupt governments. The more perceived risk, the more discount investors will take. It's why Pakistan's relatively robust economy trades at such a huge discount. They clearly hid Bin Laden from the Western world. So we don't invest in them. Or if we do, it has to be well below Macy's White Flower Day Sale prices.
That's the political risk. You thought you had a nation-friend, and it turns out that they were picking your pocket. So when there's political risk, you discount for it and re-evaluate whether or not you want to roll dice in that direction with your hard-earned savings.
