What Donald Trump’s tweets could mean for foreign investments

What Donald Trump’s tweets could mean for foreign investments in 2018
The style of leadership in some countries is changing – as is their form of communication. Investors should proceed carefully.

Regardless of one’s political allegiance, Trump’s use of social media undoubtedly constitutes a change in how the US President communicates.

Donald Trump opened the New Year by tweeting a threat to withhold aid to Pakistan, a long-time US ally; the intervention on Pakistan came alongside another on Iran, where anti-government protests have drawn support from Washington.

Every Trump tweet activates thousands of computer algorithms, triggering stocks to be bought and sold.

While taking little time to produce, such tweets can have material repercussions on international relations and financial investments.

Every @realdonaldtrump tweet activates thousands of computer algorithms, triggering stocks to be bought and sold, alerts sent to investors. There are even apps that alert investors when Trump tweets about companies.

Last year Mexican traders joked that the country should just buy Twitter for $12 billion and shut it down, rather than spend billions defending its currency when Trump tweeted about trade and immigration from Mexico.

Change of leadership
Trump’s tweets and leadership style are arguably part of a broader change of leadership among certain nations.

As global risk consultancy Control Risks recently warned, businesses in 2018 will face profound uncertainty because of the increasingly personalised and assertive style of some national leaders whose decisions are hard to predict.

Businesses will face profound uncertainty because of the increasingly personalised and assertive style of some national leaders.

“Global dynamics and perceptions of risk are being shaped by a more robust, personalised and unpredictable style of political leadership in many parts of the world, making business planning very difficult,” said Control Risks in its RiskMap 2018.
 
Such leaders rely heavily on nationalism and, to varying degrees, populism. Prone to capricious decision-making, they may sometimes find foreign companies convenient targets.

In truth, political agenda has always been a consideration and factor affecting companies’ overseas investments. In some cases, the new brand of highly personalised and assertive leadership styles might be exaggerating our perception of some on-the-ground risks in certain countries. The risks or, at least, any change in them, might be less than they sometimes seem. 

Having said that, geo-political fragility has quite arguably increased in the last 12-24 months. And investments in certain countries, for example Iran, are more at risk than before.

Unpredictability
With large-scale foreign investments often made over a 3-5-7 years’ timeframe, it’s difficult to plan adequately when macro eco-political relations between certain countries seem so unpredictable.

Political risks in a foreign country are actually caused by both the foreign country and the country of the investing or trading entity.

It is often misconceived that political risks in a foreign country are due to the events and Government actions in that country. In reality, political risks in a foreign country are a factor of both the foreign country and the country of the investing or trading entity.

There are some schools of thought that would say that the country with the greatest political risk is the US, due to its extensive foreign policies (which might be perceived by some as intrusive or even aggressive). For example, a Norwegian investment in the oil industry of a foreign country could well be a lower risk than a US investor’s risk.

However one views overseas political risks, one thing is certain: unpredictability. Foreign government actions like war, trade embargoes and expropriation can affect a company’s bottom line, costing it tens or hundreds of millions. They can even cause a company to write off its investment completely. The longer a trade or investment agreement, the greater the uncertainty – and the more that cover is needed.

Companies should therefore seek professional advice from specialists, who can advise them on how to mitigate such risks or transfer them to insurers via an expropriation or contract frustration policy.

For more information, please contact Peter Hornsby on:

peter.hornsby@uk.lockton.com

 

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