Political Risk Latin America Blog @PolRiskLatam

2011 Global Macro Risk Ratings

Posted in News and Articles, Political Risk by politicalrisklatam on April 4, 2011

by Michel Leonard for Gerson Lehrman Group, April 1st, 2011.

Summary

Alliant released its Global Macro Ratings for 2011. These cover political & economic risk in 175 countries. The last several weeks in the Middle East brought back political risk to the fore of global investors and markets. Looking to 2011, we forecasts increased headwinds for Emerging Markets, an increase in the threat of renationalisation in the oil & energy sector, and more sovereign risk contagion from Europe.

Analysis

Global Risk Levels, Middle East Oil & Gas Risk, and EM Sovereign Debt

Emerging Markets Headwinds

Global political and economic risk levels were on the rise over the last 12 months, with Alliant’s benchmark PERI index down 0.93 point for the year to 68.30 in January 2011, compared to January 2010. Emerging Markets, which experienced improvements across all major risk indices in 2009, experienced a reversal in 2010 with Expropriation & Creeping Expropriation (ECE) and Legal, Regulatory & Licensing (LRL) risks on the rise across all regions but Eastern Europe. Resource nationalism, especially in the energy sector, was a key driver behind this trend, pushing Alliant’s ECE and LRL global indices down by 3.5 points in the last 12 months.

Oil & Gas: Political Risk in the Middle East & Beyond

Looking to 2011, we expect Emerging Markets Expropriation & Creeping Expropriation (ECE) and Legal, Regulatory & Licensing (LRL) risk indices to deteriorate further as a result of three key drivers: growing resource nationalism in the energy sector, underdeveloped legal and regulatory systems in frontier markets incapable of meeting the challenges of capital and investment inflows, and governments actively challenging investors’ recourse to international arbitration, and now the threat of uncertainty in the Middle East. In addition to those variables, our watch list for the energy sector include a possible renationalisation of the energy sector in Brazil, actions against foreign investors in Ghana and West Africa, and the World Bank’s growing political intrusion into arbitration procedures at ICSID.

Sovereign Risk Contagion

Global credit conditions, as tracked by our Trade Credit (TC) and Currency Inconvertibility & Transfer (CITR) risk indices improved over the last 12 months by an average of 3.83 points. However, the margin of improvement in the OECD was twice as large as in Emerging Markets. While growth in Emerging Markets will continue to outperform the OECD’s, our data points to a rebalancing of global credit risk levels away from the latter into the former going into 2011. We expect this trend to accelerate going into Q3 as inflation, monetary tightening, and potential contagion from the Eurozone sovereign debt crisis negatively impact Emerging Markets credit quality at the sovereign, corporate and consumer levels.

(continue reading… )

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